There you go.

Uh good evening and welcome to the Wednesday, June 24th, 2026 meeting of the Utilities Rate Advisory Commission.

The meeting is now called to order.

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

Yes, thank you, Chair.

Commissioners, if you can please unmute your microphones.

Commissioner Tanakela is absent.

Commissioner Gasperd.

Present.

Commissioner Zito.

Commissioner Burdock.

Present.

Commissioner Steinbaum.

Here.

Vice Chair Nelson.

Here.

Commissioner Rogers.

Here.

Commissioner Chambey.

Present.

Commissioner Cook.

Present.

Commissioner Olson.

Here.

Commissioner Eberly.

Present.

Commissioner Johnson.

Here.

And Chair Evans.

Here.

Thank you.

We have a quorum.

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

After the item is called, we will no longer accept speaker slips.

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

We'll now proceed with today's agenda.

Okay.

Well, my acknowledgement.

Okay.

We've got the land acknowledgment.

So please rise if you're able for the opening acknowledgments in honor of Sacramento's indigenous people and tribal lands.

See the original people of this land, the Nissanon people, the Southern Maidu Valley and Plains Mi Walk, Patlan Win Tun peoples, and the people of the Wilton Mancheria, 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 today together today in the active practice of acknowledgement and appreciation for Sacramento's indigenous people's history, contributions, and lives.

Thank you.

Please remain standing for the Pledge of Allegiance.

Okay.

Next is approval of the consent calendar.

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

Thank you, Chair.

We do not have any speakers for the consent.

Okay, thank you.

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

Okay, do we have a motion and second for the consent calendar?

I'll make a motion to make a motion to approve the minutes.

Second.

Thank you.

All in favor, say aye.

Aye.

Any opposed?

Any abstain?

Sorry, and can we just confirm?

So that was a motion by Commissioner Olson and a second by Nelson.

Perfect.

Thank you so much.

Okay, any abstain?

All right.

Motion passes.

Okay.

Moving barreling forward to the discussion calendar, the meat and potatoes of today.

Okay.

Wastewater rate adjustments and proposition 218 overview.

Okay.

Uh good evening, Chair Evans and honorable commissioners.

Uh we're gonna tag theme a little bit, so I'm gonna do the presenting and David is gonna help me by advancing the slides.

So, okay, I think we're ready.

Okay, so uh good evening, everyone.

Thank you for having us today.

Uh my name is Dalia Fodd.

I am the director of the Department of Utilities, and I'm here today to talk about the proposed rate adjustments for water and wastewater fund for the Department of Utilities.

Uh oh, I should mention on the screen we also have uh Rift Brian from Ref Tellus.

He's gonna be presenting uh later in the presentation as well.

So we're gonna more tech teaming for you today.

All right.

Um, wanted to start with a little bit of background.

So the department of Utility uh provides three main utility services to residents and businesses in the city, and that's drinking water utility, uh, everything from collection treatment and distribution, storm water utility, uh, drainage and flood control, as well as wastewater, which includes, of course, sewer collection and conveyance.

All three are super critical uh utilities for everyday life of our residents, and of course, important for public health and safety.

Thanks.

Okay, so on the water side, uh we collect the water all the way from the rivers and wells, and we trade that water through uh very tough regulations uh to make sure that it's safe, and then we provide that through uh thousands of miles of pipes to our residents and businesses on a 24-7 basis.

Uh on the water side of the house, we have two water treatment plants, uh, about 22 ground water wells, more than 1600 miles of water mains, and 107,000 software and hardware data points.

Those are data points that help us operate the system.

For wastewater, we collect the used uh wastewater from homes and businesses on a 24-7 cycle.

We convey that through thousands of miles of pipes to uh and dozens of pump stations to a regional treatment facility at Saxor.

Uh we do have more than 800 miles of sewer pipes, 52 pump stations, two wastewater treatment plans, and more than 28,000 software and hardware data points.

For this slide, we're gonna focus on a five-year outlook of the water fund.

Um so I wanna spend a little bit more time on this slide because it highlights uh from FY26 all the way to FY3 uh one, the difference between the total revenues that's collected by the department, the total expenditures, and then you'll see in the middle row in red what the difference or the delta is.

So as you can see very clearly that we are bringing in way less money than we need for our expenditures.

Uh for FY26, that number was as high as 36 million dollars.

We were able to bring it down to almost 10 million dollars in FY27 by proactively doing some budget cuts and delaying some projects and deliberately trying to bring that number down ahead of the rate increase process, because obviously we wanted to be a little bit prudent in case things don't go as planned.

Um, what's important to also point out in this table is uh you will see in FY29, not only are we using all of the revenues received, we're also using 25 and a half million dollars from our CIP uh reserve funds.

Um, and by FY 30, we are completely in the red, uh, not even have any reserve funds available.

Um so obviously it's a pretty dire situation.

For wastewater, uh, similar story.

Again, we have revenues expenditures in the middle row in red.

You can clearly see that we are bringing in less money than we need.

Um so it shows you kind of the delta and need there.

Um the other challenge with the wastewater fund is it's quite a small fund.

So that means even though it shows we have some money in our fund balance, all it takes is one emergency repair for that money to be wiped out because of how expensive the emergency repairs projects could be.

Um, also it's worth mentioning that because of the deliberate cuts that we did do for FY27 and the deferral of some of the projects.

We are not running out of reserve money as shown on this table, but we could have easily run out of reserve funds as well, similar to water.

Okay, so how did we get here?

Um, so you'll see on this chart that the last approved rate increase for water and wastewater happened back uh uh in 2020.

That was the last time we increased the rates.

The last time council voted on a rate increase for water and wastewater was back in 2017.

So it's been actually almost 10 years that council took action on the rate increase.

During that time, we've had other rate uh adjustments.

So we had a rate adjustment for drainage, we had a rate adjustment for solid waste, we had a rate adjustment by SACSOR, all our uh utilities that get uh built through the same utility bill that gets sent out by the Department of Utility.

We also had COVID, COVID was very challenging because uh there was definitely some sensitivity about increasing rates while people had no jobs and they were home because of the pandemic.

We have uh new and increased regulations at the federal and state level, supply chain issues, which created definitely not only long wait times, but also very uh expensive, you know, added expenditures, uh salary increases, uh major inflation.

So we find ourselves today on the water fund with about 42% increase in our expenses and less revenue, and on the wastewater fund and change revenue, however, our expenditures did increase by at least 20%.

To add to that, we have quite a large balance of deferred maintenance for both water and wastewater.

On the water fund, um, I know we should we've shown you some of these numbers in previous presentations, but just to kind of refresh uh your memory, we on the water side uh we have about $875 million worth of deferred maintenance.

On the wastewater side, we have about 1.32 uh million billion uh dollars of deferred maintenance.

Um, so that's a huge backlog of uh projects and repairs that we need to be able to do.

Otherwise, it will just keep growing.

Just as a reference point, uh, if a project cost about a million dollars back in 2022, uh 2020 dollars, that same project would cost about 1.25 million dollars in today's dollars.

And we think actually that could be even more just based on the recent bids that came in for some of the city projects.

Um, because we're not able to keep up with projects and uh deferred maintenance uh, we see at least about one and a half million dollars being spent on average annually on unplanned emergencies, which of course does draw money straight out of our fund balances as well.

So, what happens if we don't act?

Uh we will see definitely some service impacts to water and wastewater.

Uh public health and environmental risk, that's because we could have you know uh broken water maze, we can have sewer backup in downtown Sacramento, or um, you know, it might impact our ability to uh meet all of the regulatory compliance requirements for the city and things like that.

Um there will for sure be an increase in the frequency and cost of emergency repairs again because we don't have funding to go out and do projects and maintenance activities in a timely manner.

Um, and then we we will have credit rating uh will be at risk because if we don't have enough revenues coming in, that means our credit rating will be impacted.

Um, and that means when we borrow money, we're gonna have to pay it back much higher rate, and also the money that we're paying back today, it will impact that as well.

So major major implications.

Okay, for this slide, we just kind of wanted to share some of the uh prudent steps that the team took in this uh, you know, rate process.

Um, so from an accountability and oversight standpoint.

Uh we picked Reftelos to do the rate study for us.

Ref Dellas has more than 30 years of experience in this field.

That's kind of like their meat and potatoes.

So uh they're a third party, so completely independent analysis that was conducted as part of this rate study.

Uh we've had a city auditor review, and actually, the city auditor came to the same conclusion that we do need a rate increase, and they had some suggested numbers in there for what that increase should be.

Uh, this is the proposition 218 process.

What that means is we can only collect money to be used for the purpose or for the utility that is collected for.

So we cannot take, you know, money and go help a general fund.

We cannot take money and pay it to police.

We cannot collect money.

We can't even collect money from water and wastewater and pay it towards drainage projects.

If money is collected through a water rate, it has to be spent on water.

And if it's collected through a wastewater rate, it has to be spent on wastewater.

Citizen oversight, of course, uh every step of the way, the team checked in with the URAC.

So that's our main interaction from a citizen oversight.

And that will continue until the very end when we have the public hearing for the Prop 218 process.

From an independent legal review, so not only did we have legal review of our internal CD attorney services, we also obtained an independent legal review from an expert that is a 218 expert to also review our processes and assumptions to make sure that we are ready for the next steps.

So, okay, I'm done with part one of my presentation.

So now I'm gonna turn it over to Brian with Ref tell us to do his part, and then I'll see you guys back later.

So Brian, you're up.

Thank you.

Good afternoon, Chair and uh commissioners.

Uh my name is uh Brian Bass.

I'm with Raphtellis, I'm manager with the firm, and uh very thankful to be a part of this project.

Uh on the screen here, you'll see the rest of uh our consulting team.

We have Lindsay Ross, she's a senior consultant with uh RAF Tellus.

We also have Summer Simpson, she is a consultant with Rap Tellus as well.

Lindsay worked on the wastewater analysis, and Summer worked on the uh water analysis.

Uh, today I'm gonna do an overview of the objectives uh of a rate study, the specific objectives that were identified by the city.

Uh we'll talk about what what is our rate study, what's what's a part of that process.

Um, we'll talk about the proposition 218 process, the prioritization work that the city did to identify uh the capital projects that were used in the financial planning component of the of this project engagement, and then we'll we'll talk about the um we'll wrap up with uh you know the the outcome of the Prop 218 and the next steps and and some of the new legislation um that's a part of that that helps add protection for the city.

Um, so with that, uh next slide, please.

So, what is a rate study?

I want to start off by addressing some of the objectives that any water and sewer uh utility would be looking at when you're looking at a rate study.

So these are overall objectives, and then we'll talk about some very specific objectives that were identified by the city of Sacramento.

So the first is is balancing these four components.

One is uh financial viability.

So we were just we just looked at some slides where we saw a five-year projection and we saw the revenues not meeting the revenue requirements.

We saw uh ending fund balances that were actually becoming negative on the water side and approaching uh that on the wastewater side.

So we want to make sure first and foremost that the water and wastewater funds are financially viable, that they're self-sustaining, that they're not reliant on the general fund, those kind of things, and then within that financial viability, there are different um, there are different revenue requirements that need to be addressed as well, and that's operation and maintenance.

Those are the costs that the utility needs to operate on a daily basis.

There's also the infrastructure investment, not only in the past, but also in the future.

There's there's uh deferred maintenance that um that we were talking about that's the over 2.2 billion dollars.

So there's the past uh need, and that's also combined with a lot of the future projects that address regulatory requirements, uh, not only just aging infrastructure, uh, but there's also uh projects that are to make sure that the water and wastewater fund is maintaining that same level of service that stakeholders and customers are relying on.

And then uh the main component is also fairness and equity.

We want to make sure that the revenues are fair for customers, that each customer each customer is paying their fair share, not subsidizing another customer class.

And so those are the overall objectives, and now on the next slide, I want to talk about some very specific ones that were identified by the city.

And this is the first is to ensure continuity of operations.

And so we saw when we were looking at the five-year projections that when the ending fund balance goes negative, and when you don't have those capital reserves, that is it's very challenging.

And we want to make sure that there's no disruption to the current service levels on the on the water side, that's making sure that customers have access to safe and reliable drinking water.

On the wastewater side, that's uh collecting wastewater, conveying it in a safe manner that's also protecting the environment.

So that's that's the first objective.

The second objective is meeting those policy objectives.

This is ensuring the financial and fiscal health of the water and wastewater fund.

And within those policies, there are one having 120 days of working capital, one year minimum capital reserve, and the purpose of those herbs reserves are to absorb short-term revenue losses from seasonal fluctuations in demand, uh, offset revenue losses from lower than expected annual sales, address timing differences between periodic cash flows and inflows, uh pay for unexpected operating expenses or capital expenses, and also to kind of help smooth out routine capital maintenance and repair and replacement projects.

So that's the that's the kind of purpose of the reserves, and that's why those are very important.

And then from a rating agency standpoint, um, the debt service coverage is what a rating agency will look at as well.

Um, and this is a metric that helps to gauge the revenue being adequate to pay for debt service.

So we take your revenue, we minus out uh the revenue expenses, um, and then we divide that by your total debt service.

And the goals for that to be greater than 100%, um, but the city has a policy that's a little bit higher than that, which is great, and it's great from uh a rating agency standpoint of being at least 120% or 1.2 times that.

And so that's the second policy objective.

The third objective in the rate study is making sure that we're minimizing the deferred maintenance backlog and addressing those high priority uh non-deferred maintenance needs.

And later on in the presentation, I'll go through some of the priority process that the city uh implemented to help mitigate those rate increases.

Next slide, please.

So, how are rates set?

The funnel that we see here on the left really highlights the three major components of a rates rate study.

Excuse me.

And the first one is the financial plan.

So with the financial plan, we're we're looking at billing data, we're taking those revenues, miscellaneous revenues, and we're projecting those out over the study period.

Then we're comparing the revenues to uh budget expenses, projecting out those operating and maintenance expenses, projecting out the CIP expenditures, um, and we want to make sure that the revenues are greater than the expenditures.

But while also meeting those policy objectives that we just talked about with the with your reserve requirements as well as make meeting making sure that you have the debt service coverage ratio.

Um, if you don't meet reserve requirements, if you don't meet the debt service coverage ratios, then that's when we look at recommending a rate increase to make sure that the revenues are sufficient to meet those revenue requirements.

So once we have the revenue requirements, the first uh in the first year of the study period, we call that the test year, that's what we use in the second phase, which is the cost of service analysis.

And really, I think the cost of service piece is is really the beauty of the rate study.

This is where we're making sure that rates are compliable with proposition two eighteen.

Um, share an analogy to kind of how this works.

If if we were to go out to lunch, and if I if I ordered the, you know, the the appetizer and the entree and the dessert and drink, and uh if you just ordered a salad and the water because you were either you know not as hungry or was it budget conscious and didn't want to spend the money when the bill come out comes out if the if the waiter or waitress asked, you know, how would we like split that if we if we just said, hey, let's just split the cost evenly across the board.

Well, that's not very fair.

Uh, if you just ordered the salad and the water, it'd be great, great deal for me, but not not for you.

And so, from a cost of service standpoint, we want to make sure that one customer class isn't subsidizing the cost of another customer class, and that's what the cost of service process does.

We look at the demands that each customer class places on the system and then make sure that the rates that there are going to be charged are appropriate.

Um, and then the bottom part of that funnel that you see is the rate design.

So that's where we look at to make sure that the rates that we are are calculating are appropriate for the different customer classes.

Uh next slide, please.

So the prioritization process, um, we work with the city auditor's office to do the water and wastewater fund review where we took the total needs of the system and looked at you know what type of rate increases would be have to be implemented for that $2.2 billion need for across the water and wastewater system.

And the rate increases were very, very high.

So at that point, the city really rolled up its sleeves, and the executive team spent uh a number of months and and countless hours working on this prioritization process that you see here.

The slide doesn't really do the justice of how much work was put into this, but there was 426 projects, and that was narrowed down to 255 priority items for the critical one.

So critical one is the greatest impact of failure.

Um, if a project were to fail or if a piece of infrastructure were to fail, um, there'd be a lot of costs associated with it, and there'd be a high consequence there.

Um, this also addresses infrastructure that it's exceeded its useful life and also protects health and safety, and there are some projects that are required by law in order to comply with our uh regulations that are passed, not only nationally, but in the state of California.

Uh priority two projects were which are not included in the financial plans for uh the proposed rates or projects that are lesser degree of impact.

Uh, it would extend the useful life of uh of the infrastructure, would promote health and safety and financial stability, and then the last level, the priority fee threes, this would be service level improvements, uh greater efficiency, and long-term resilience, and so in order to mitigate the the really high rate increases that would be faced by the water and wastewater utility to address that total need.

We're really just focusing on the priority one projects, and those those are what are included in the financial plans uh for for the proposed rate increases.

Next slide, please.

And so, how are the water bills being calculated?

So we work with the city to determine the allocations that are used in the cost of service analysis, and within that, um, the the current ratio of of fixed to variable revenue recovery is about 40 percent of volumetric and 60 percent fixed.

Uh, this will be a minor adjustment where we're we'd be adjusting the volumetric portion of the revenue, uh, instead of it being 38%, it'd be 47%, and then the fixed portion of the bill would be about 53%.

So there's basically two components of how water water bills are being billed.

So customers have a fixed monthly service charge that varies by meter size.

Uh, so for example, a 5 8 inch meter would pay a small amount versus a 12-inch meter that has a lot more capacity, uh, more maintenance and those kind of things, and that would be a higher uh fixed charge.

Uh then there's a volumetric rate that's based on the consumption that's used.

Uh, the great thing about the balancing that you see here is it really helps to put um customers more in the driver's seat with their bill and really helps from an affordability standpoint.

If most of your bill is fixed, um there's not a lot that you can do about that.

So uh on the water side, if you if you can't if you can't change it because you you want to change your consumption patterns, it it really hurts.

And so this really helps to balance that, um, and it kind of helps to give uh customers access to address any issues there.

Uh, next slide, please.

On the wastewater side, is it's much more common that you would see a flat charge, especially in um with the utility that's uh collection system that's not providing the treatment, so residential and multifamily customers uh though they have a flat monthly fee that's similar to what they have now.

Uh, non-residential customers would pay a similar to water, fixed a revenue of fixed charge that varies by meter size, then they'd have the consumption fee, but for residential and multifamily customers, they would have the flat monthly fee.

There's no usage component for them.

Next slide, please.

And so we mentioned affordability earlier.

So I just want to point out that the city does offer a rate assistance program for customers who need help paying their utility bills.

If you were to scan this QR code there, it would take you to a landing page with the city Sacramento that would identify three qualifying questions.

And then there's also three types of three application processes that a customer could utilize to sign up for this program.

So they want to make it uh as easy as possible for someone to sign up and kind of take away those hurdles.

And so that QR code would take them there.

Next slide, please.

And so I kind of want to before we talk about the proposition 218 process.

I do want to circle back on the cost of service because the cost of service, I like to change that word fair share to proportionate share because uh fair would mean different things to everyone in this room.

I like to focus on the word proportionate share because uh proportion is directly tied to the math behind it.

Um, and so that's why I like to say proportionate share.

And that means that you know, the larger the larger users that have you know high demand, uh they're gonna pay more.

Uh so each customer is going to pay what uh for their fair share that they place on the system or proportionate share.

Next slide, please.

So, what is the proposition 218 process?

Uh it was approved by California voters in 1996 to ensure transparency and accountability in how local governments set fees, and so step one of the process is the public notice.

So the public notice is mailed out to all property owners uh 45 days before the hearing.

Uh, and this gives them an opportunity to review the proposed rates.

Um, and so it's it's available for for the public that during that review period.

Uh step three is the public hearing for all community voices to be heard.

Um, stakeholders and and um customers in the community can um can talk and and give their opinions and thoughts on this and and make sure that uh the commissioners um understand their position and and their concerns.

And then step four of the protest process is if a majority of effective parcels submit written protests that exceed the 51% threshold, then the rate cannot be adopted.

Next slide, please.

Uh there is some new legislation, AB 2257, Assembly Bill 2257.

Uh, when I first read this when this was introduced, um, you know, a couple years ago, um, it seemed like it was making a process that was that seemed like it could be a little complicated, even more complex.

Um, we had the opportunity as a firm to meet with one of the persons that helped to develop uh and spearhead this new um this new assembly bill at the time, and when they when they walked us through it, it really enlightened me to how this really helps the utility and the reason why is it adds a new layer of transparency.

Um the whole written objection process uh is where it starts, property owners submit a written objection stating the reason they believe the proposed rates do not comply with proposition 218.

So it's not just a uh a protest, but it's an actual objection with a reason why they they feel that the rates are not legal.

And then the city actually has a time a chance to respond to that.

So cities require to provide a written response uh to every uh timely objection before the public hearing.

Uh, and this is great.

So if there's a concern, uh we can address this concern.

If there was an issue, we could fix the issue, show how we fix the issue, and it's addressed there, and then the city has a record of this at the very end.

Um that's a part of the uh official record from the Prop 28 218 process.

Next slide, please.

So I mentioned uh a protest earlier, so I want to talk about what's the difference between a protest and a written objection.

And this question comes up actually quite a bit.

Um, a written protest is just a formal opposition to the rate change.

Uh this was you know, someone see, you know, hey, I know the city has deferred maintenance, hasn't passed a rate increase in quite some time, but I still am against uh raising the rates.

You know, that would be more of the of a protest.

Um a written objection would be a specific claim that the rates do not comply with Prop 218, that they're they're not proportionate, they're illegal, and they would explain why and their the reasoning behind it.

Um for a written protest, uh, it would count toward the major majority protest threshold, 50% plus one.

Um on the written objection side, it preserves the right that challenge.

So without a written objection, uh that person could not you know some provide a legal challenge later on.

So that provides more protection from the city, provides a layer of transparency, um, so something's not you know coming out from left field that the city doesn't expect.

Uh, the requirements are similar uh name, address, signature, clear statement of opposition, uh, for protest for an objection, it's the same thing except you're stating the specific grounds for noncompliance.

Uh, the deadline for a written protest is before the close of the public hearing, and the deadline for a written objection is 45 days after the notice.

Uh, and with the city's schedule, we built in a few extra weeks to make sure that there's adequate time if a written objection were to come in on that 45th day.

Um, a written protest is one protest uh per parcel, and the qualification on the written objection is a timely filing required to preserve the legal rights.

A written objection can qualify as a protest, but not vice versa.

Next slide, please.

Uh I will turn it back over to the city.

Thank you.

Okay, so now that we've seen how these rates were developed, we're gonna actually uh talk about the rates themselves.

So next slide.

Uh starting with the residential rates, so this slide shows what the drinking water and wastewater residential rates will be for a typical single family.

Oops.

Residential.

Um we picked single family as an example because that is the most common residential uh property type in our billing system.

So the table shows what the current rate is for each of the utilities, as well as what the annual increase will be over the next five years.

This is a five-year increase proposal, so we want it to be as transparent as possible and show what the numbers would be for each of the years.

Uh we thought it's important to show how we compare for both water and wastewater.

Uh, on the water side, you will see that um within other agencies in the region, uh, the city of Sacramento rate is you know pretty near the bottom.

There's only one agency that has a lower rate, and even with the proposed increase, this table is showing increases for year one uh of the proposed increase.

We will still be near the bottom on the water side.

The wastewater side is a little more complicated because as you can see from the shading, none of the other cities in the region have a combined system, they all have a separate sewer system.

We have both a combined system and a portion of the city that's uh also a separate system.

That does make our operational cost much higher, and because of that, we included for comparison's sake, the city of San Francisco, which is the only other city in California that has a combined system, as well as Seattle and Portland, which are the only other two cities in the uh West Coast that have a combined system.

So we wanted the comparison to be more apples to apples, and even with that, with the proposed increase, we're pretty close to our neighboring city of West Sacramento.

For the commercial side, uh this table shows what the proposed uh water and wastewater rates will be for a medium-size commercial property.

So that would be like the typical hair salon, mid-size shop, uh, you know, cafe, small restaurant type.

Um, this would equate to about a two-inch service, basically.

Uh, again, that is the most common uh commercial property type in our billing system.

That's why we chose to use it as an example.

Uh, and again, the table shows what the rates are currently as well as what they're gonna be over the next five years as proposed in this rate increase.

For additional information, we also wanted to give you um kind of uh show what the numbers would look like for small and large businesses as well.

So for this chart, you see the water rates.

Um the shaded is the existing water rate for small, medium and large type commercial properties, and then it shows you what the change will be for these properties over the next five years.

And then this slide shows what the wastewater rates will be again for small, medium, and large.

Shaded is the current rate, and then it shows what the numbers will be over the next five years.

So what's being funded?

Um a portion of the funding will go towards funding the gap.

As mentioned earlier, we do have a gap between the revenue that we're bringing in and the expenditures that we need just for everyday operation of our utilities.

So that is priority number one.

We also need to fund some new CIP projects.

We'll discuss some examples of those later.

We will be building our reserves, and as explained earlier, that's highly important for our uh credit rating, but also to allow us to bond for larger projects.

Um and finally, we will be funding some new operations that are required uh either for resiliency or uh to make sure that we're ready for growth to meet new regulations and so on.

Some more specific examples include uh fleet replacements for both sides uh operations, uh policy and planning and technology.

Um for fleet replacement, uh we got a question about adding some additional details.

So I do have some numbers I'm gonna read off my screen if that's okay.

Okay.

Okay, so just for reference, um, we would like to note that DOU has approximately 397 vehicles and large equipment.

Approximately 277 would fall under the state regulatory requirements to be replaced with electric vehicles.

So that's up to 70% of DOU's vehicles basically will need to be replaced.

In the rate study, the assumptions that were made is that we're gonna have 50% replacement of these vehicles in FY28, and another 50% in FY29, and then by FY 30, you will have 100% replacement rate.

Uh for water, that in year one, we're gonna be replacing 12 vehicles, uh, and then for wastewater in year one, we're gonna be replacing seven vehicles.

So we just wanted to add a little bit more detail to the numbers that you see on the slide here.

And we can definitely send more data as well.

Uh for CIP projects, so uh these are general categories of some of the types of CIP projects for water, but actually, I'm gonna have a couple of our uh team members come up here and give more specific examples of drinking water and wastewater projects.

But for drinking water at a high level, we're gonna be doing projects for uh treatment facility resiliency improvements at both treatment plants, reservoir improvements, uh new transmission mains, and new ground water wells.

And for wastewater, we're gonna be doing uh treatment facility rehab, pump station rehab, um electrical rehabs, and so on.

So at this point, I'm gonna call a couple of our team members to come and just share uh some specific examples of the CIP projects.

Good evening.

My name is Michelle Carey, and I was going to start by telling you about some of the water CIP.

So could we go?

Thank you.

So included in the the improved or CIPs for the time frame of this rate adjustment.

We have I'll start with the groundwater wells.

We have uh three groundwater wells that we plan to build, and we would uh abandon several of the groundwater wells that have reached the end of their useful life.

So that would be a deferred maintenance CIP.

We have a number of reservoirs, there's 17 reservoirs throughout the city with a handful at a few of them at the water treatment plants, but throughout the system throughout the city, there are several that are in need of repairs, replacement of electrical systems, and also structural uh improvements uh both on the exterior and the interior.

We are also we have a large transmission main that is in a state of failure.

There's been a number of leaks that have been repaired.

Uh this is the one that I'm referring to that would be included in this in the projects for fiscal year 28 through 32, is from City College Reservoir all the way into uh downtown Sacramento.

It is a 24-inch transmission main that needs to be replaced.

And we also have the water plus project that we have presented on in the past that is um is a resiliency project at our water treatment plants, and phase one would be a um would take approximately 10 years to build, and that's once we start construction.

So I will uh Roxanne Dilly is going to talk to you about the wastewater projects.

Hello, Roxanne Dilly, wastewater supervising engineer.

So on the wastewater side, I'll kind of go in order of the slide.

Um treatment facility rehabilitation.

We have two combined system wastewater treatment plants.

Uh we have the combined wastewater treatment plant, CWTP that has some rehabilitation repair needs as well as some electrical upgrades.

Uh we have Pioneer, which has major uh structural deficiencies where we're doing some temporary fixes, so we're anticipating some bond money to help replace the roof of that facility, as well as the washwater system for that completely needs to be replaced as well, and it's uh additional concrete repairs.

Uh facility doesn't look to have been constructed appropriately, as well as having chemical treatment inside of it.

We're doing studies to uh determine extending the useful life of the walls as well.

So we're anticipating additional costs.

We have the outfall pipe where we did an emergency repair a couple years ago, and we put in a particular type of liner specific for that type of use, and we only did a portion of the pipe because of the restrictions in the funding that we had available, and we would like to continue the rest of the lining of that pipe.

Um so that's another million dollars for that one.

Um so that's uh summary of the treatment facilities with our separated system pump stations.

We have about uh five stations that we have identified with electrical rehabilitations as well as as we're doing electrical upgrades.

We'll also look, is there any mechanical issues that we need to upgrade or update or replace other site improvements, uh instrumentation.

So we have a few stations that we have identified for these needs, and that'll go with some of the electrical as well.

We're also doing some SCADA improvements.

Um, and if I could have Charlie, come explain this the benefits of SCADA, but it's more citywide.

Thank you, Roxanne.

We touched on this a couple times.

Um Charlie Cunningham, wastewater drainage uh division manager with DOU, but also I manage the SCADA uh team, and that supports the uh department on both sides water and wastewater and also our drainage division.

But uh we did a master plan a few years ago, we were looking at obsolescence of you know components that were no longer supported, and so we've done a ton of work there uh as far as to get all the perimeter security in place.

Um we realize as being the capital city of the fourth largest economy in the world that we're a target right for cybersecurity.

You may have heard recently that there was exploits that happened in Chico, Bakersfield, right?

Um the Iranian um groups were you know um mentioning that they had been successful in exploiting data.

So we're constantly aware of that and trying to upgrade and the benefit, right?

Of that system is it gives us visual right into all the different locations that we support, but also there's control, and so we don't have the labor force that actually has to go out and put eyes on what the status is of the different processes that are running.

And we've done a few exercises uh for day without SCADA, right?

Is one of them that we called uh the exercise, and it just led to a lot of great work being done that quantified the amount of labor it would take if our SCADA system was down, and so really the benefit to the residents is that we're keeping it secure, we're you know trying to do you know what we can our due diligence to not be vulnerable to cyber attacks and ransomware attacks and all those things that would exploit additional dollars out of our department.

Um but the um the projects are you know where we're having third-party assessments done.

Uh, we've had different assessments from Homeland Security, uh American waterworks, and then we get recommendations back from those assessments, and then we implement those recommendations, but we don't have all the funding right to do it all at one time.

So it's been a phased approach.

We've like I said, we started with the perimeter security where we felt like we had the most vulnerability to being exploited, and then now we're working through other segments of the system.

But it's um we have to get it right every day.

The bad guys only have to get it right once, right?

So that's the diligence that it takes, uh, in trying to maintain that system and hats off to our crew that um that does that work because they're very dedicated and you know they've they've done a lot um to keep us safe and reliable, and that's really what we sell, right?

Public trust, that when somebody turns the tap on or they flush the toilet, the water goes in the right direction and it's clean and safe.

So we're monitoring all that in the SCADA system as far as regulatory compliance for water quality.

Um, all the the logs that we need uh to you know share with our regulators as to things are being done properly.

That's all you know part of how the SCADA system logs and monitors um the processes that we run.

Thanks.

Anything else?

No, and um that kind of sums up like our pump stations, our larger ticket items, pump stations and treatment facilities.

Then we have our pipe programs so the pipe replacements and the basin improvements both fall in that.

So our combined system, we've been mentioning it's our oldest assets for our pipes, and so we have uh needs for pipe replacements in the combined system in the separated system.

Uh, we do have a large need.

We have one basin that is interfering with our ability to meet our discharge requirements with our combined sewer system uh NPDS permit uh due to potential rainfall dependent inflow and infiltration getting into the system.

So we have money set aside for I and I improvements to go in and fix pipes or upsize pipes uh to make sure that we are operating that basin in a way that will allow us to meet our regulator compliant regulatory compliance for our combined system.

It's just a separated system that happens to hit the headworks of where we come into our combined wastewater treatment plant, and if we're sending more money through that money, more sewer is money, as we're sending uh more flows through that pump station, then we uh won't be able to meet our regulatory compliance for sending the flows from SUMP 2 all the way to regional sand or echo water now.

Um, and then the basin improvements, we have some capacity improvements where we're trying to keep up with other areas, so capacity improvements are also expensive improvements.

Uh, the way we've been able to achieve this so far has been through grant funding, uh largely development funding, or development driven, so trying to put in the capacity improvements needed so that we don't have to mitigate our sewer flows.

So we uh just invested quite a bit of money in our district two to get our uh capacity where it's needed, but we have two more projects that still need to be done to help complete the rest of that package.

So that's a summary of our treatment facilities and our pipe programs and our pump stations.

Okay.

So now we're gonna talk about the timeline.

So we are here today presenting the rates in front of you.

Uh we are hoping to complete the actual rate study in July, and then in August, we're gonna send out the Prop 218 notices to all impacted property owners.

Um that Prop 218 process will take us all the way to December at that time.

Uh during that time, we're gonna be conducting some pretty robust outreach and engagement with community members, stakeholders, uh HOAs, and so on.

Uh the goal is to hold our Prop 218 UREC uh, I mean rate hearing at the URAC in December, and then we will go in front of city council uh for a vote in early 2027.

The new rates will become effective July 1, 2027.

Uh for outreach and engagement, like I mentioned, we do have a robust plan.

So uh we are of course doing briefings to our council members.

Uh we're doing presentations here at uh at this body, but we're also doing some targeted outreach to business and industry groups.

So we have a liaison that we hired to help us with that.

Uh we have conducted some community uh partner interviews, but we will also keep offering uh interviews with some stakeholder groups.

Uh we will be holding meetings with uh chambers of commerce, PBIS, uh neighborhood associations.

Any opportunity for us to be in front of people to educate them about this rate increase.

We're definitely gonna take advantage of that.

Um for some hard to reach groups, we want to use uh more uh traditional uh type of outreach with the uh print and radio, for example, in different languages, uh, but also use community ambassadors as feasible and some city connect mixers and things like that.

And then finally, we're gonna have just some bill inserts, we can have uh website that will include information about the rate increase, uh, some frequently asked questions, and also it will have a calculator so someone can actually put in their property address and they will get um information about what their water rate and their wastewater rate is gonna be after the increase.

Um, and just a bunch of social media and newsletter updates and things like that.

Um, finally, the Prop 218 notices themselves, of course, when they go out to all the property owners will have information about the process and links to the websites and things like that.

So, and I think that is it officially for the presentation.

So now we're happy to take any questions or comments that you have for us.

Thank you, clerk.

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

Thank you, Chair.

We do not have any speakers.

Okay, thank you.

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

Oh, there are.

All right.

Um, I've got a burdock slash steinbaum.

Yeah.

Um, one of your slides I believe was one of the Rotelis Reftelus slides.

They had a list of critical priority projects, and you I guess rack and stacked everything and seemed.

Could you you gave the breakdown?

I think the critical one that seemed about 70% of your projects or something.

Um, what was your list of your other two?

And do you would you provide us a list all 495 projects so we can see how you write them?

Uh much.

I think you are you referring to how we were able to narrow down the critical projects.

Yeah, yeah.

Um, or at least could you give us a list of how what you how many are critical?

How many are your other categories and such?

So you didn't have that information on your slide.

Yeah, I think we can follow up with that information and send it uh to the UREC members for sure.

Actually, Commissioner, if I could mention, I believe when we were here in August, we presented numbers associated with all of those categories.

So if you have ability to see the presentation from August, it would be in your URAC binder.

It would be also be available through the channel uh for this meeting, but we can certainly follow up in the meantime and provide that information.

You might be able to find it a little bit sooner in those presentations.

Well, send it anyway, I'll look for it.

Absolutely.

Okay.

I have a few questions related to like the fixed versus volumetric charge, but I have a feeling other people might ask some of those questions as well.

So I'm gonna start by jumping in to some public input related questions.

Um I think you did you guys did a good job of explaining the requirements and how you're going to meet the requirements.

But I'm curious if there's any sort of plan to respond to like the written protests or other public input that is not considered a written objection, um, and how if you plan to respond in any way, how, um, if not, maybe why we um I don't know, Ryan, if you want to add more details, but I I think mainly under the um assembly bill, we have to for sure respond to every single um protest that we get under that.

Um, but for normal protest, I don't know if I think we're just required to tally those, but we're not necessarily required to respond to every single one of those.

So, Ryan.

I think I'm loud enough.

Uh good evening, Chair and Commissioner.

Uh, my understanding, we uh director Fadell is correct, we could tally them up.

There's no legal requirement for us to specifically respond to each of them or those things.

Now, with that said, uh part of our outreach program uh that we had in a prior rate adjustment when we attend community meeting and those questions that was brought to us, we do genuinely trying to get back to them as much as we can as possible.

So we do have that component for our customer and constituency.

Yeah, and we have the ability, for example, if we see that there is a common theme on a certain question, we can always update our website where we have the frequently asked questions posted, and we can add those specific questions on there as well with responses to them.

So there's other ways to get um around that, but yeah, we're not required to submit a response to every single one.

As a follow-up question, um, yeah, I think having information online is very helpful, and I'm curious if you what materials you plan to post online that will be available to the public.

Well, I um I think like I said, there's general information about the need for the rate increase.

Um, and then we're gonna definitely have the frequently asked questions.

We're gonna have the tool for people to calculate their actual rate, and then are we gonna post the study once it's final?

Yeah, so the rate study itself will be posted on there.

Um it'll be identified in the 218 notice, and it can be reviewed.

I think it's just kind of a living document as we go through this process um as updated as possible, possibly with when community meetings are, if we have that information, answers to questions, that sort of thing.

Right.

And then I guess one last question that I think I know the answer to, um, but I'll ask anyway for the public hearing, is the plan to keep it as a hearing where you were just listening to input and uh not necessarily responding in that meeting.

I would take advice from Mike Boss on that, but I think uh again, we are not required to respond in that hearing.

I'm happy to jump in on Mike Voss, senior deputy city attorney.

Um, so the way that the hearing works, and I've been through a couple of these, um, you'll have a lot more members of the public than you usually have, and they come up and they comment, and then the commission members comment.

And so I think your comments certainly can reflect the comments of the members of the public.

Um you can provide your own opinion, but they're typically it's like a city council meeting where they're commenting, they're commenting for your consideration, but there's no expectation that they're responded to individually with their spoken comments.

That makes sense.

Um I will get back to my fixed versus volumetric charge uh question, and that's my last question.

Um, I am curious.

So, I thought the discussion about the fixed versus volumetric charge was very interesting and how things are now going to better reflect um, you know, usage, uh, but is the change in the percentage of like, you know, the charge that's related to the fixed versus volumetric fee, um, is that changing because the fixed and the volumetric fee are changing, or is it changing because the fixed fee is staying the same, but the volumetric fee is increasing, and therefore the like projected uh percentages would change.

Does that make sense?

I think I understand your question.

So the the way it works is if one of the percentages changes, the other one has to change because they kind of complete each other.

So if one of them is reduced, the other one increases.

But as far as like why did we go lower on the fixed amount, I think that better aligns us with kind of state of where the other agencies are with their rate setting.

Uh, but I also know that Brian knows way more about this than I do, so I'll have him chime in on this one.

No, that was that was a great point.

Um we certainly didn't set out to adjust the rates uh from a pricing objective standpoint.

Um we started with the because the main pricing objective was the make sure that the rates are aligned with the cost to provide service to comply with proposition 218.

And so that was the number one price and objective.

So we work with the city to determine the allocations within uh the water cost of service analysis and a wastewater cost of service analysis.

And as a result of that, the fixed costs that need to be recovered just happened to decrease from where you are currently, and so um that's why that change is reflected, and it just it just happens that it's uh it's really a benefit to the customer that it's a little bit lower, the bill's a little bit more balanced.

Um, now one thing that's great about this is it does put the city in a position to in the next rate study to see how not just the fixed versus variable, maybe maybe changes in five years, but we'll be able to see the different components that are being allocated, how those may adjust.

So we allocate costs that end up to address average day uh demands as well as maximum day demands, and there are costs that are associated with fixed, like reading meters, um billing and those things.

So now that this rate study is is complete and we're going through the the report process, um, in three or five years' time, uh the next rate study, you'll be able to look at how those individual categories may shift over time, um, which end up going into your fixed versus variable.

So you have another another layer of information um in your record going forward to kind of track that and see how things are adjusting over time.

But again, we didn't we didn't set out to change it uh from a pricing policy perspective, but really just those were the results of the cost of service analysis that showed that the fixed revenue recovery should decrease a little bit uh and that the volumetric revenue recovery need to increase.

And if I could add uh commissioner Steinbaum, keep in mind that our current rate was from 2017, prior to the accelerated meter program when the city, you know, was not the majority of the city was not on meters.

Now this majority of the city is on meters, and so it, you know, there was, and and correct me if I'm wrong, Brian, but there is was less to recover from the volumetric side because we didn't have as many customers on the volumetric side.

So now that our customers are on majority of them are on volumetric, then the recovery from that is higher and the fixed is lower.

Thank you.

Okay.

So I uh was listening to the report about the uh cyber security, that's something that uh is uh very uh very very strong interest of mine, and I know that uh in the month of May the of 2026, the uh Gow report, which is uh Congress owned watchdog stated that uh state sponsored hackers are actively uh targeting water and wastewater control systems, and that uh 70% of the water utilities inspected in 2024 failed basic cybersecurity standards, and that the default passwords were unchanged and no proper access controls.

Um, as a former military police officer in a battalion level, I just am curious uh the proposed rate structure.

Does it include a dedicated funding to secure our water control systems against cyber attack, or is it that gap is unfunded?

So I'm I remember you mentioned that certain things is had to be left alone due to lack of funds, but I'm thinking something like this is uh you know, usually catches the attention also of federal.

So is there any role that the federal government is doing that the funding that you see as a gap that that can be closed without penalty uh to the citizens of uh Sacramento, or is there a different situation on that?

No, so we already have um budget that's dedicated to this, right?

And so it's an ongoing work, right?

As I mentioned every day that we're have folks that are dedicated to keeping our network secure, and we have third-party assessments.

Uh, we just recently you know uh completed an AWIA assessment that's through the EPA, right?

That's every five years that that happens, and so then we have a follow-up contract that's ongoing right now with projects.

We just had a progress meeting this morning uh with our contractor uh to address any of the recommendations, but there's all the third party assessments that we've had um have been uh you know minor things right that we need to adjust.

And so, and that's the thing where, like I said, we took care of the perimeter, right?

So we don't have any internet-facing devices, right?

And so all of our perimeter security was the first thing that we addressed after we had this project, and so um, and we had an internal audit that was done through the city auditor's office recently.

Um, there were some minor things there that we needed to address.

Uh, you know, uh all of this is uh important to where that we have things that are confidential, that we're not uh sharing that type of information to expose our any of our vulnerabilities be made public.

Uh, but we do take uh those seriously and we address those, and then, you know, there's been uh, you know, we talk about deferred maintenance, right?

So that's one thing that I can say that this department has always we've always had awesome support in that regard of recognizing what are the priorities.

So just like the question how do we get from three two and one priorities?

And so when something like this is brought forward, then sometimes there's other projects that have to be deferred, or within the SCADA system, we're looking at projects saying, okay, these are things that are behind the firewall, right?

They are on something that we need to address, but the priorities need to be taken care of first.

So I can say there's there's already funding dedicated to this cause, but it's just us being able to complete, right, and implement all the recommendations uh are really the goal.

Uh yes, uh I thank you for that because it's uh being more active now that we see just on the news, a lot of the uh different uh cyber terrorist terrorist attacks.

Uh then also now we're seeing more things that are being unfolded by uh government FBI that are stopping attacks um and different uh critical uh water systems throughout the United States, yeah.

All right.

Thank you for the question.

Yeah, and I think as Roxanne mentioned, some of these cater improvements need to be happening right at each of the facilities as well.

So that's where, like those proposed pump station improvements and some of the ad facility type repairs or CIPs that are happening will also feed into that entire SCADA strategy.

So it's all part of that.

Thank you.

Commissioner Eberley.

I'll go after Vice Chair Nelson.

I have a number of questions.

Thank you, Director Um, and then Mr.

Bass, uh very good presentation.

I'm trying to um refresh my memory going back to August, the August time frame on lots of the details.

So my qu some many of my questions are going to be clarifications of some of that, if you don't mind spending the time on it.

Um and Mr.

Bass, I have some other questions for Raph Tell us, too.

So I'm just I'm kind of looking at um slide number six.

Uh your your slide deck wasn't numbered, but I put it as slide number six, the five-year forecast water, um, and so I'm I'm looking at the kind of ending fund balance.

Is there a um uh is there a target number you're looking for, in essence to cover cover the cash flow of these uh revenue expenses for the for the funding, where do you want to be in the funding and balance for each year here?

David, you want to take that one?

Uh that's a good question, and and it's a balance, right?

Because if we're over collecting, then that balance goes higher.

Um, so number one, we need to make sure that we can fund our 120-day operating reserve.

Uh, that's number one.

Um, and and number two, uh, that CIP reserve.

Really, we have this designated reserve policy that is council adopted that lines out what the requirements of our reserves are, and as um Dahlia mentioned, uh, critically important from a borrowing standpoint, um, we have debt on the water and wastewater side, and we uh regularly report to credit agencies working through the treasurer's office where we are with respect to uh that that differential.

So I can't give you a specific number sitting here, but I can say that the goal is to make sure that we achieve that.

Um I will say that on the wastewater side, um, with the proposal that's in front of you, uh, we will not achieve that.

We are still striving to get to our reserve targets, but a lot of this requires substantial rate adjustments to get there.

Um, I believe we're able to get there on the on the water side, um, but it's also one of the reasons why we've been able to make it so long since our last rate adjustment is that we have had fund balance and we have implemented the reserve policy to ensure that we can cover all of our expenses if necessary.

So it is a balance, but we definitely need to make sure that we adhere to our reserve policies.

And between these two, water and wastewater, um, is is the water I'm looking at the current deficit line here.

Does that uh imply that the water is a more serious problem than the current deficit for wastewater?

If I may jump in, I think they're both equally as serious.

This just reflects that the water fund is a larger fund.

So the wastewater fund is a smaller fund, but both of them are in the red, and I would say equally as critical.

In fact, if we look at the deferred maintenance for wastewater, it's much larger because of the combined system and how old it is.

Um any failures in our combined system, for example, will still be equally as catastrophic as a water main failure or a treatment plan issue.

So I would say they're both equally as critical, just large fund and smaller fund.

And Commissioner, if I could also add in the latter years of that wastewater forecast, and I've forwarded uh advanced the slide one, we're able to minimize the deficit in the out years.

You can see kind of dropping from 5.3 to 5 to 1.8 to 1.7, and that is due to uh defunding CIP contributions.

So we've a defunding what CIP contributions, so in order to keep our head above water, we've actually reduced the amount of funding in those out years in that five-year forecast so that we can stay um you know uh above water.

Uh and then the the uh the row other funding sources remind me what those you got them various for water, fiscal year 26, fiscal year 29, and then in wastewater fiscal year 26.

So that is the CIP reserves amounts.

Yeah, so for FY29, that is the defund the complete defunding of our CIP reserve to help uh balance the books.

Um other sources and uses in other years could be the use of of those reserves.

It could also be year-end adjustments that are made by accounting uh that are reflected as other sources and uses.

I can I can't speak specifically to that 17.9 or the 2.4 sitting here, but we can certainly follow up with that information.

But I can tell you that that 25.5 is the defunding of our CIP reserve.

So um could you just elaborate on the logic of that um CIP reserve is for capital investments?

Correct.

So our saying you you won't need that at these points in time, or so the designated reserve policy states that we must have one year uh minimum of one year funding of our capital program in reserve.

So our capital program is funded at 25.5 million that year uh in order to keep those improvements going, and these again go back to you know 875 million dollars in deferred maintenance.

This is allowing us to continue to advance those projects by completely defunding the reserve.

But I think what you're seeing in FY29 is because of the continued deficit that we are having, the fact that we're not bringing in enough revenue to cover our expenditures, we would have to basically deplete that CIP reserve just to be able to bring in enough money to do everything that we want to do for FY29.

So, so am I correct in assuming that after this five-year um forecast that you're you still may have the a need for a CIP at some future five-year timeframe?

Or does it disappear completely?

So the I'm not sure I understand the question, but I'll I'll add this and you can correct me.

Um so this rate process builds that reserve back up to its minimum level.

Obviously, the hope is that we don't have to touch that.

Um the mechanism exists in the reserve policy, uh, but as we mentioned with respect to that 2.2 billion dollar deferred maintenance, you know, it just takes one project uh one failure that's you know, millions of dollars that is not planned for in our budget, and that's those are instances in which we would have to then take from that reserve to pay for that.

Yeah, so if there is an emergency repair, for example, and stuff, we would take money out of that.

But uh, I agree with David, the goal is to rebuild it back to be in compliance with our reserve policy and then keep it there as much as possible.

Commissioner uh Ocean, may I add uh to refresh your memory because we went over this several uh meetings ago?

Uh I totally concur with the operation and the CIP aspect, but I would like to remind you that the reason why we want to review our reserve policy because our bond rating is depending on it.

So we as a department of utility dependent on our credit rating to have a more opportunity to get better rate to achieve more saving for our ratepayers.

So as a contingent on the reserve, as you can see, the reserve is working the way it's working because if we didn't have the reserve, we wouldn't be able to fill in the gap between 26 to 28, 29.

The second thing I want to refresh uh uh the my own memory and yours as well is the reason we built bill the reserve when we started many years ago, we were double A- and it took us to double A positive and double A stable for both the water and the wastewater reserve.

That is a significant amount of progress of the fiduciary responsibility that the Department of Utility have achieved through the collaboration with our city treasurer.

The impact not only for operation and CIP, the significant impact for our future borrowing power would be significant less if we do not get our reserve restore to the level where we commit it to the uh the bond market, that's what we will be doing.

So that is the third aspect of what David and Director Fidel uh mentioned for you.

Very good.

I appreciate that refreshment.

I have another, given you you mentioned the debt.

Um I I have another need for refreshment.

Um, and it's the um kind of the normal business practice of taking on debt.

Um if you could just help help clarify this again.

This you may have already said this previous meetings, but I'm I'm looking for a clarification again.

Do you normally take take on debt as a method of financing uh these improvements, or is it taken out of a out of the funding pool on a cash basis as you build these projects or have these improvements?

I'm glad to provide you with the refreshment.

So I remember we had this conversation before.

Our goal is to make sure that we use the appropriate rate adjustment to support our operational stuff, but if I would take this uh opportunity in DOS you is if we have a water plus project, there is no uh way that we can be able to fund that out of our uh ratepayer uh uh fund.

We definitely just like I have a mortgage at home, my monthly salary would not be able to pay for a 300,000 or 600,000 uh mortgage.

So I have to go to the bank.

The city of Sacramento has to do the same thing, and that is uh I want to make sure that I'm supporting your question is that is a deliberate decision from the Department of Utility.

We do not just arbitrarily uh make a decision on how to fund a certain project.

That is a a a significant amount of deliberation between the Department of Utility and the City Treasure Office, because that is something that we do not have the capacity within our rate structure to support the big large investment.

Very good, and that gets to another question I have, and it's the timing of these improvements.

Uh you have five-year forecast time frame and you've you've got um anticipated expenditures over the five years for these improvements um how much of this can be done simultaneously at the same time versus staggering projects over time.

If you could just refresh my memory on that.

Yeah I will start and then maybe I'll have someone from engineering come and help me with this answer but I would say we definitely are not gonna have old projects going on at the same time we will stagger them that's gonna be based on the priority for projects and other factors that go into it for example if it's tied to regulatory compliance if it's tied to something that's critical then those will probably move faster there will be projects like Water Plus for example phase one it is almost 400 million dollars.

That's not going to happen in year one that has to happen at a later time because we need to build the reserve to finally be able to bond for it so that will probably happen you know later in the five year cycle maybe even into the next rate cycle so but Cheryl you and more and while and while Cheryl comes up let me just remind uh commissioners of something that um Brian Bass covered in his presentation so um when we are looking at our deferred maintenance and our high priority non-deferred maintenance that is priority three in in the in this in the respect of what we're trying to achieve with our rate adjustment so a lot of these projects have been pushed out to the latter years of this rate cycle simply because we need to a ensure continuity of operations we need to make sure our revenues and expenses just for existing operations can continue and then reserve policies you know the policy obligations we need to make sure those are shored up and so when we you know I can't speak to prioritization necessarily but I can say with respect to the rate study we had to push out a lot of projects to the latter part of the cycle so that a the revenue can come the rate revenue can compound to give us additional funding to fund those but it's very critical that those first two objectives are met first.

So I just wanted hello I'm Cheryl Hume I'm with Department of Utilities engineering and so I just wanted to provide a little bit um of details on how engineering plans out our projects so our engineering CIP fund managers you have Roxanne and Michelle that do wastewater and uh water they have a 30 year CIP so they map out what we believe our needs are based on the data we have for 30 years and we use that for rate planning and planning purposes in general and then they get a set of numbers from our financial team for our five year CIP and that's what you all saw in the budget information that we provided you with the FY27 budget that was just adopted by council.

So they'll take a look at a five year snapshot based on so 30 years this is what we believe our need is it is better estimates in the early years and a lot more general in the outer years.

But then they'll take that information and they look at the money that we have for each individual period in the five year CIP and using our priorities they will fit the projects to the funding that we actually have and things that we take into consideration we've you know talked to you last year at some of these meetings but they'll look at the condition assessment of our facilities they look at the criticality of our facilities they look at what emergency projects that we've had what you regulatory needs that have come in and working with our OM divisions they will go in and shift projects around.

So I think when you ask, do we do them all at once or are they staggered?

Yes, they're staggered.

So all the time they're making adjustments.

So every year they will take to council a five-year snapshot um where the first year is the one that what we're really planning on delivering, and then based on the information that's gathered and what things are happening in the system, they will make those adjustments.

And so that uh deferred maintenance number that we talked so much about, that is because over history we haven't had enough funding to keep in front of uh all of the repairs that our assets need, and so as things are pushed out because we don't have the rates, um, then that number uh continues to grow.

Uh thank you, Cheryl.

I have another follow-up question.

Cheryl.

Um I was gonna ask this of uh Brian Bass, but um, and I was looking at his part of the presentation, the priority prioritization process, priority one, priority two, priority three.

It looks like from from what I have seen from the past meetings that you have done an assessment of of kind of a reassessment of where you need um where the expenditures are gonna go in your in your forecast, and it looks like you whittled down some of that.

I think that's what your your comment earlier was.

So does that mean that this five-year forecast is really focused on priority one items?

So a couple different things on that.

The items on this slide are department-wide.

So it includes staffing uh additions, it uh looks at operational uh costs in all of the different uh divisions in the department, and it includes the CIP costs.

Um so they're all blended in there.

So go going back to that your your comment about 426 total needs narrowed to 255.

Does the previous um presentations you've done identify what's in the critical priority one list now?

Where can we see that?

So we identify by fund and priority, the number of projects.

Um we don't have we we have not provided in in public uh a list of all 426 projects.

How about the 255?

We have provided examples of projects.

Um when we were here in October and December, we called out some specific examples of some of the larger projects, um, but we've not shown you know detail of 255.

Anyway I mean we tried to capture some of the categories within the slides earlier, like we talked about for specifically for CIP, we at least tried to provide the headlines of what those categories are, and then Michelle and Roxanne provided some specific examples for what some of those CAPs would be.

So that's kind of like without listing all, you know, 255, like Cheryl said, it includes other stuff other than CAP, but for CSB specifically, that's kind of how we tried to share that information.

Yeah, I think that would be real helpful to have that.

I mean, you you went through a process to kind of narrow this down and um which would indicate what you think the priorities are.

I think it would be good for this body to have that information.

I have some other questions.

Um I was gonna ask some of this of uh Mr.

Bass, but um I'd like to kind of kind of uh pivot to him at this point, but come back to you on some other questions.

Is that okay?

Yeah.

Um so Mr.

Bass, appreciate your presentation.

Um I'm just curious, um, what your uh you had stated that you have done similar kinds of studies, rate studies for several local governments, and I and I guess one of the questions I have is um uh were any of those recommended rate study uh rate increases not approved by other local governments?

Uh there um for the most part, the iteration takes place before the Prop 218 notice, so um we will put together a financial plan, uh recommend rate increases, we would have a discussion like this.

Um there were case there are cases where, for example, maybe we're looking at a series of of 10% rate increases where for whatever reason the the city council decided to go with a little bit less.

So that's as certainly is possible.

We've also had some cases where similar to here, there was not a rate increase for several years.

And in order to, if we presented a couple different phase-in scenarios for the rate, similar to this, where we had alternatives one, two, and three, and the recommendations, and then the city council selected one of those alternatives.

So typically we we come with just more than one financial plan, and that was the case here.

So we we did have different options of rate increase scenarios.

Um then the you know the city council's able to select uh which scenario uh they're comfortable with.

So we we did the same thing here as we did in other places, so there was more more than one option on the table.

Uh very good.

Um, so in this in your in your study, um, to what degree did you have a role in the priority settings one, two, three?

Um, did your did your analysis cover did it did it provide any input into this process?

No, that was the city.

Um so the city is more familiar with the projects um and what the need is, and so we once the city developed the priorities.

So if we go back to the water and wastewater fund reviews where we were looking at um the total need for um each of the funds, once the total need was identified, we worked with the city to uh project what the proposed rate increases would be to address all those needs.

Um but if you remember from that fund review, uh the rate increases to address all of those needs, um, priorities one, twos, and threes to combine the combined list, uh the rate increases were uh over 50% in a couple years.

And so the city realized that you know that was um a non-starter.

And and really instead of digging their hills in and saying, hey, you know what, we haven't had a rate increase, we need a rate increase.

There's deferred maintenance uh and and pushing in that direction.

They really went to work to see how can we mitigate these rate increases and address the this capital need so that we can maintain this level of service.

So uh there was quite a bit of time frame from that water fund review to when this rate study process began, where the city was really working on those one, twos, and threes, so that once this rate study process started, they were able to give us the list that hey, you know, we worked on the need since then, and here's where we want to start with.

We want to start with this priority ones and see, you know, how does that affect our rate increases now?

And so uh the priority process, the city the city did, but we work with them to see you know how the rate increases were mitigated as a result of their hard work.

I would like to just add real quick that to move forward with drafting a rate study report.

We can only move forward with like one, you know, scenario.

So we had to come to that decision, and in order to meet our deadlines and our schedule, we needed to make a decision with the number that we feel that we can stand behind and that we can present that balance is both the need for us to get the rate increase, but also we are mindful of affordability.

We are mindful that we haven't had a rate increase in a long time, and for us to truly get back to where we need to be, that might take us a couple of rate increase cycles.

So we had to take a lot of factors into account and internally we made the decision to move forward with the numbers that you see today.

But we had to have uh identified scenario for us to move forward with developing and having Reftelles help us with a rate study that we can then use that for our 218 notices and all that stuff.

Because we cannot change, we do not want to change the numbers once we put out a 218 notice.

We can't go higher, obviously we can go lower, but whatever we present to the public, we want it to be unified and have a number that basically we can take it and run with it.

So we needed to make a decision, and that's what we did.

If I could add Commissioner Olson, one other thing.

But just to refresh your memory, those three financial plans that uh Brian mentioned for each fund, some approached over 100%, almost 200% recommendations.

And again, each of those plans had a different level of you know funding the needs.

Um, but you know, back to DALIA and the process we went through, you know, we we knew we couldn't offer up something like that.

Um, it just was not affordable.

Um, and so that's why that prioritization process was so important, so we could get it to something that we could justify um to the city manager and and to the public.

Yeah, appreciate that uh elaboration on that.

Um, Commissioner Olson, um, want to thank you for your comments.

There are a couple other commissioners in the queue, though.

So if you could hold your questions until we get around to others.

I'll I'll if I can come back at some point.

I have a number of other questions, but I'm yeah, certainly.

Um, Vice Chair Nelson.

Thank you, madam chair.

Um there have been a few other utilities in California that in the process of raising the rates through Prop 218 have been litigated with a variety of different results.

Um, some of their rates have been overturned in the process, and I wonder if either somebody from the city or from RAFTELS could speak to how the city is um defending itself proactively from the potential of litigation.

I would that's just me at my level, and I will have the experts speak up, but that's one of the reasons why we chose to have a sub-legal review that is uh specialize in Prop 218 rate increase processes.

She looks through the assumptions uh for the rate study, she looked at different parameters and basically came back to us with recommendations and that and things that we did take into account, including um how we're doing the billing for our wastewater, for example.

She gave us some recommendations for that that we were able to incorporate.

So we are trying to make sure that we're definitely checking the boxes from a 218 standpoint to be legally defensible and not have any holes in the process.

But with that, Brian or Mike, I'll turn it over to you if you guys have anything to add.

I'll just add something on real quick, but the city did hire um Jarvis and Faye to do a review.

We when we kicked off the uh rate study process, um, we pointed out early on that it would be good to have the legal review before the report is um drafted, and so the city was very prudent to make sure that happened.

We had a lot of uh great discussions early in the spring uh with them.

Uh, got their feedback, addressed their feedback uh versus waiting until the reports have been written and then get legal feedback.

So not only had the city hired a third-party uh legal uh review, but its own in-house legal counsel um was able to provide comments and feedback as well to provide um more security for the city, and I'll just add we're not doing conservation tiers, and that's been a significant source of litigation, and so that's that's one thing we're avoiding.

Thanks for that clarification.

I think my only other question was as I understand the fixed cost component of the proposed rate, fixed costs are things that cost the same no matter how much water you use.

So staff salaries, the pipes you don't use the pipe anymore, you know, if you use a gallon or if you use 10 gallons, right?

Can you just help me understand more completely how you're thinking about what quantifies or what qualifies as a fixed cost versus volumetric, which is self-explanatory?

Is it just everything that's not the amount of water that you use?

I will have Brian answer this one.

Sure.

So just to kind of give a brief of a high-level example of the process.

So we start with uh let's we'll talk from the operation standpoint.

We look at the all the operating expenses um by the chart of accounts, and within each chart of account, there's descriptions, and we work with the city to understand what each cost is used to fund.

And so some of those costs are are directly related to the source and supply of water, some of those costs are directly related to transmission distribution of water.

Some of those costs in the operating budget are related to billing.

And so the way that you recover um costs that are related to, let's say, source of supply or transmission distribution, those are more volumetric related, so you would um recover those costs in that manner versus a cost that's more that's that's fixed versus like such as billing or meter reading, those would be based on a per account basis.

And so depending on the units that are associated with how those costs are allocated, that would determine you know how many costs would be recovered in the volumetric rate versus how many costs would be recovered um through the fixed charge because it would be a per account recovery.

Um, meter reading, issuing bills, those sort of things.

So uh that's kind of how we get to each of those categories from a very bird's eye view, so to speak.

If I could, could I offer maybe a layman's uh description and you can fact check me if I'm I'm misstepping, but um for the the fixed versus variable rates, my understanding is typically if you're split up the cost of water into a service versus a good, the fixed cost charges you for the service of getting the water to you.

Everything that it takes to run the system to get to your house, and the volumetric is how much you're using, so per gallon per HCF, that's how much you're using, versus the fixed is this the delivery service to get it to you clean.

Um that's based off of your meter size or your commercial account, whatever type of customer account you have.

Is that cover it?

No, that's great.

All right, you're hired.

All right.

Um, yeah, I I think from an expert's uh point of view, it's a little hard to translate sometimes.

Um anything else?

No, I think in the interest of time, I'll keep it to two.

Thank you.

Okay, Commissioner Cook.

Thank you.

I just wanted to uh clarify the department's current bond credit rating.

Yes, Commissioner Cook.

Uh go ahead, I'm ready for your question.

Uh, what is our current uh credit rating?

Oh, I'm sorry, I didn't hear that.

Yes, for the water is uh double A positive.

That will give us a potential to move to triple A, which is the top, and that has been uh since 2016.

We have diligently tried to get us to double A plus, which is at the top of your bond rating.

I I think uh double A positive will give you us that opportunity when we get a civilian uh survey from the credit agency, they will determine do we have a stable uh level of revenue coming in?

Uh one of the stable revenue coming in is this important process that you and the uh the chair are helping us is consistent ability to have the ability to pay for our bills, meaning that if we do not have consistent rate adjustment, that's gonna put a pretty uh difficult uh position for the department of utility, and on the reverse.

If we do not have consistent rate uh flow of revenue, all creating age and uh creating uh credit uh will likely go back to you know the the low end.

So that is for water and for white waste water is double A stable, so that is our creating uh credit grading for both.

Thank you, Commissioner Cook.

And then I have a few questions for I think we also did receive a late speaker slip.

Um, and I want I'll also get back to you, Commissioner.

So um I think building off of the the variable and fixed rate conversation, I heard a couple of different reasons why that proportion had moved around, and I wanted to kind of give a chance to clarify.

Um I know in my in my experience with fixed versus variable rates, moving towards a more variable rate is often kind of geared towards price signaling and giving customers more agency to see if they're using more of their it gives more incentive to conserve water.

Is that kind of I'm I'm just in hearing what the motivation or the policy behind that shift is.

I also heard um David mentioned that now more of the city is metered, so we're gonna be capturing more money.

I'm I think from what we've heard in presentations, it's the fixed part of the system that is in need of more funding and support.

And so I would love to hear explanation about why that shift in percentages is gone that way.

So I'll I'll start.

Um and then Brian, please feel free.

So this question was posed to Raf Tellis and outside legal counsel.

Um so the the process of a cost of service analysis is to show you know what the proportional costs are according to the function of the system.

So we are not going into this saying we want to create more capacity for a variable.

Um we can't do that, that's against Prop 218.

So it's just based on the cost of service and and what Brian mentioned, you know, the the fixed versus variable.

Um, so it has to be based solely on the cost of service.

Um you get to some tiered rates, and I think we were talking about this a little bit earlier.

Um, that is typically where you get into like a um, you know, uh what is it uh the the demand um piece of it um used a word and that's escaping me um price signaling?

Yes.

Um so the I guess the point is that we we we just didn't go in with that because that's not what 218 allows us to do.

Um Brian, I think I'm butchering this, but um I I will say that that has come from our outside legal council.

Um you might be able to speak more, Brian, to like specifics around the percentages.

Yeah, you're you're right, and and you point out you made a great point.

If we were if the pricing objective was uh demand management and sending the conservation pricing signal, um then the focus and recommendation would be a tiered rate structure where the the first tier would be central water use, the second tier would cover uh some portion of the variegation, and in the third tier would focus on sending that pricing signal.

That's that's not the case here.

We have a uniform rate structure.

Um we didn't, and like I said, we didn't set out um to adjust the fixed versus variable recovery.

We allocated the cost and the the revenue related or the volumetric related recovery just showed it was a little bit of a change from where you are currently in the same thing on the fixed.

Um, the great thing is is now that the rate study process has been completed uh during the next next phase, whenever that happens in three to five years, you'll be able to see, you know, on the average day demand, max day demand parameters uh and the costs that are being allocated there, is that changing or is it still you know staying the same?

And I would imagine it would be pretty close to uh where you are now since it's been several years since it's uh the last uh analysis has been done.

And Commissioner Evans, uh Chair Evans rather.

Um, if I could just add, and and Brian, I think um you helped us with this, is that most utilities aim for a 30% fixed revenue recovery?

So even at 53% were higher than what most utilities aim for with respect to fixed cost recovery.

Okay.

Correct.

Um, and also curious, so Sacramento's been growing a lot, there's been a lot of development.

Does this rate increase move forward into impact fees at all for new development to support the existing system that we're all investing in?

This rate increase has no impact on the oh, this this rate increase has nothing to do with the impact fees for development.

This rate increase though will allow us to uh pay for projects that will improve our resiliency of our systems for both water and wastewater, which in turn will be part of that new development story, right?

Because new developments need water and they need waste reliable wastewater services.

So the projects that we're doing to for resiliency for these systems and to allow us to grow, that is included in these rates, but the impact fees are completely separate one-time fee that developers pay up front to mitigate for impacts of their projects.

Alright, and I have one last question, and that is still to do with the fleet replacement.

I think for the last maybe year and a half, two years, we've heard a lot about the system, and only in the past couple of meetings have we heard more emphasis on this huge chunk of our non-CIP investment in the fleet replacement.

And I think you mentioned I sent some questions ahead of time and you answered a lot of those in the presentation.

So thank you for that.

Um but still with the number I feel like I'm struggling with 277.

If you were to replace all of those at 40 million dollars, it's it still doesn't quite match up if if you're taking just a back of the envelope.

If MSRP is 70,000, that's still only 20 million dollars, 22 million, something like that.

Um are there are there any other reports or studies or or figures that can help substantiate the 40 million?

I I'm gonna give my simple answer and then I'll have either David or uh Brian jump in with more details.

But I think what's built into that fleet replacement, it also includes just normal old fleet and old equipment that needs to be replaced, in addition to having to comply with the state regulations for electric vehicles.

So I think it's kind of a lump sum number that includes a lot of that in it too.

But the numbers I shared earlier, and we're happy to email them uh to you later as well.

That was specific to what we're doing to comply with that requirement.

But um I don't know if we have any more details about what went into that fleet number right now, or we can share it later.

No, I think that that Dahlia covered that.

Uh I will just say, and you know, we again we've talked about this.

There's a lot of unknowns, right?

A lot of these vehicles just don't exist.

And we work directly with the city's fleet department to help, you know, determine you know what our obligations are in terms of replacement, what city policy there's still city policy that needs to be set on this stuff.

Um, you know, and and there's also infrastructure, right?

And and you know, that's not captured here.

So like charging infrastructure?

Yeah, charging infrastructure.

Um, and of course, you know, we don't generate our own power, we work with smud.

And so, you know, there's a lot of elements here.

What what we do know is that this requirement exists.

Um, it's still being flushed out.

Um, we will have an obligation to um, you know, to upgrade our fleet, and so um, and we just don't know what that number is.

We're doing our best based on information from our fleet department and what they're giving us, what we are seeing, um, and so it wouldn't be prudent of us to not set aside some amount of funding because the requirement is coming in this rate cycle.

So, is the 40 million is that a do you generated number, or is that in coordination with the fleet or that's in coordination with fleet.

Okay, okay.

And I think to one of your questions about what happens with older vehicles once they get replaced, that that also falls under the purview of our fleet uh division under public works, though.

Um, we don't necessarily like David said, this is a new regulation.

We don't necessarily have all the pieces in place yet internally, as far as like what's gonna happen with that, but it would very much be under their purview anyways.

Uh we we like David said, try to do our best with the price estimation.

I will say, based on what we're seeing with like uh chemical cost and some of the bids that are coming back, not just for uh DOU specific projects but other projects within the city, the bids are coming in quite high.

So there's a very good probability that even though we have some numbers, these numbers are kind of conservative, and potentially the cost will be even more once these vehicles are actually available for us to purchase.

So we're just trying to do our best to budget for them.

It's never gonna be perfect, but I think that's kind of what you're seeing reflected here.

You've got a Charlie line you and Charlie's here.

I have one example if you want to share.

Oh, go ahead.

So one of the things that we touched on earlier, right?

Is that when this rates that we currently have were planned, it was nearly 10 years ago, right?

So in 2017, that's when we came before the council, said here's our needs.

So since that time, there's been tons of inflation.

So the one example that I can give, and I think I shared this before, but for example, our jet VAC trucks, right?

For the wastewater system, the collection system.

When we planned our rates last time, we planned those at $500,000 each.

The last one we purchased was $865,000, right, per truck.

So that's just one example of all the other things that affect our fleet, and we're already routinely uh, as we go through the years, because of those inflation costs, we're deferring replacements, right?

So we have our projected replacement cycle that's 100,000 miles or 10 years, or you know, however it is for each different piece of equipment, but we're having to defer those every year already because of that, you know, the increased costs from 2017 to now.

So those are just a couple examples, but there's there's others that we need to share.

Thanks, that's helpful.

Okay, that's all I have.

All right.

Before we jump to the next commissioner, um, we do need to take a vote to continue the meeting past our two hour mark.

Um, so I will need a motion in a second.

I'll move to extend the meeting.

Second.

Thank you.

That's a motion by chair and a second by Commissioner Cook.

All those in favor, please say aye.

Aye.

Any opposed or abstain?

Did we continue to that?

Thank you.

The motion passes.

So we can continue to uh Commissioner Johnson if you are right.

Commissioner Johnson.

Thank you.

Uh I had a question that I think follows up on what Chair Evans and uh Vice Chair Nelson were asking about in regards to the fleet costs, and that is um, is there any anticipation that that could expose us to lawsuits in that the uh the additional cost of meeting carb zero mission fleet requirements is increasing rates when that's not necessarily directly tied to the cost of providing the services.

I think um I don't know about the legal aspect, I'll have Mike weigh in on that.

I think as far as the cost of providing the service, these fleet vehicles are very much an integral piece of providing the service.

So, um, because these are back trucks that we use, for example, to maintain our combined sewer system.

If you have a clog in one of the pipes, now we can have a sewer overflow, now we can't service, right?

Um, if we're responding to a broken water main, we need all of our vehicles to head out there.

So I think it's an integral part of providing the service, and that's why we feel comfortable including them in the cost, but I would say the legal angle, I'm not the legal expert, but maybe Mike has.

And I might want to specify, um, I'm speaking more to the the idea of the um the additional costs of meeting the zero mission, like say our heavy duty fleet, the cost of meeting the zero emission requirements versus using a conventional fleet to do that, is that gonna expose us to potential um lawsuits and and also notice noting that uh even since I think our last URAC meeting in April, um, over 150 agencies and individuals commented to CARB on some of their new proposed requirements for meeting the zero efficient uh zero emission um amendments, and including City of Sacramento, I believe, commented.

Pointing out that the cost of getting to zero emissions with some specific kinds of heavy duty fleets, um, is prohibitive and you know, maybe not even achievable.

Yeah, no, I you're correct, and because of that, the deadline have been revised.

Uh, so we're well aware of that.

I think the the numbers that we did include in the rate study are based on the regional deadline.

When the deadline did change, we again felt just based on the state of inflation and everything that's happening.

Is that we don't want to go back and change those assumptions because it will just help us build that capital so when the vehicles do become available, we can you know start purchasing them.

And just based on the table and some of the info I shared earlier.

Uh we're kind of piecemealing that compliance anyways over multiple years.

We're not gonna be able just on year one to run out and purchase all these vehicles.

So I think we're trying to just be uh a little bit more strategic and and make sure that we don't know when they're gonna these vehicles are become gonna become available and how much they will cost truly.

So that's why we didn't necessarily make that change.

So um, I think your question then is the delta between what it would have cost to buy a normal vehicle versus uh uh electric vehicle, funding that through a rate increase, does that openness to legal exposure?

And I'll fill that we our office views that as a policy question and not a legal question.

Um Department of Utility is subject to state mandates in so many ways, and this is another example.

Um, sure, there's a chance this gets overturned, it gets postponed, but the guesses about what's gonna happen we view as is a policy call, and DLUs wrestled with that policy call, and you see that number is their policy determination.

Thank you.

Commissioner Olsen.

Point of information, madam chair.

Um, did I understand that there's a uh public speaker slip?

Yes, okay.

Um, I'd move to reorder the agenda to public comments so we can allow them to speak and not be held here for longer second that public comment was open and closed at the beginning of this item.

Um, so chair is making the exception to take the speaker slip still.

Um so if we would like to move to public comment and then we can continue on with questions, it's totally your preference.

Um does any other commissioners have comments outside of Commissioner Olson?

Okay, then then yes, if there's two, then um yeah, we can move on with the public speakers, and then we'll circle back and finish out with Commissioner Commons.

Perfect.

So we do have one public comment.

Uh Viet Long Nuen.

Hi, good evening, commissioners and staff.

Thank you for the flexibility and apologies for arriving late.

Um, my comment was centered around the utility rate assistance program.

Um, as I was listening to the presentation, the thought crossed my mind, you know, if rates are gonna increase, like what how would it impact the costs for the utility rate assistance program, or could there be any costs?

Um, I think based on the slides and the website, I wasn't quite sure what sort of the benefits are that somebody who qualifies for the program would be entitled to.

So I'm just wondering, you know, if rates are gonna increase, does that create more eligible customers for the utility rate assistance program?

Does that create any additional costs for running the program?

If so, you know, how is the city funding them or what's the funding source?

So that's just sort of kind of maybe taking a step back, kind of assuming you know whatever rate increase is going to be adopted.

If that's the rate increase, how would it impact the utility rate assistance program?

So, yeah, I think that's kind of one thing to consider or keep track of as this moves forward.

And yeah, curious if the city has done or if staff have assessed that at any point, or if that's something for future consideration.

Um yeah, thank you for your time.

Thanks for your comment.

Thank you for your comments, Chair.

That completes our speakers.

Uh my initial response is that the utility rate assistance program is funded by measure U and is outside of the DOU.

I don't think eligibility is impacted.

And so eligibility criteria would still be similar.

And the program is still funded in the same way.

Anything to add, staff?

Yes, I would like to add more mechanics.

So basically, currently the sacramental utility rate assistance program uh fund uh about 5.4 million dollars in total.

So as a result of this rate adjustment, the measures you will get a 11% general fund tax, and so that will increase the contribution to both the general fund uh as well.

So uh this is one of the council uh high priority uh program.

Uh we was not uh given any direction to do any uh reduction for that Pacific program.

At this point, we have about 8,911 participants at 85 83 percent.

Uh we are envisioned at is top 100% is about 9,800 participants.

The thing that uh our cut our citizen can count on our vulnerable community is we automatically we have put together a really automated process.

So that automated process basically we leverage the uh data change with our our partner win split.

So if you are qualified with the SMURT program, which is 200% below property uh the the federal poverty rate, you automatically uh get enrolled in the City City of Sacramento uh SURA program, and does the program also provide an opportunity for our uh vulnerable community to be apply every two years, and if you still on the EPR uh SMERT program, you will automatically be enrolled.

And the other thing that the QR code was also another opportunity for the Department of Utility to provide folks that do not have technological or access to the QR code, they can go to our website, they can fill out our application, and we also process them as well.

So that uh I would like to comment that we have not get direction from the finance department to reduce that program.

So that program will still be an offset for the vulnerable community.

Thank you, Chair.

All right, thank you.

I will also add that the benefit because I think that was part of the question, the benefit per you know, family would be a 40% reduction in their utility bill.

Great.

Okay, I think that's the end of public comment.

Yes, all right.

We'll go back to Commissioner Olson.

Yeah, very good.

Um, so I don't want to belabor the priority discussion, but just come to a conclusion that on your priority one list, in essence, what's on the list and what's not on the list based on what was presented in the past.

And I'm gonna be looking at things like pioneer roof, you know, uh Michelle and the others uh kind of went through some of those anecdotal examples.

Pioneer roofing and the structural damage that is a big project, it looks like um the two fair bearing uh water basins there.

I don't know if you're doing that all at once or staggered over time.

Um the chlorinization uh switch out, that type those are in my mind, those are high priority types of things.

Um you're looking for those on your list.

That's that's kind of what I'm looking at.

Uh electric vehicle, um, the vehicle conversion.

Um, you should be you I think you should I would recommend that you be able to pivot quickly given that there's a number of things underway, including a member of the city council who happens to be on the a member of the air Resources board, exploring this this option of taking off the table the advanced clean fleet rule, which is imposed on the city because it's it it's been it's been um removed from all private fleets because you couldn't get it the state government could not get a waiver from the Trump administration to make that happen and um so there's a there's an interest to try to remove that completely by the state of California and that may happen definitely in the next year some decision on that which would impact your five-year forecast.

If I could mention real quick, I think it's important to clarify these are like example categories.

So for whatever reason, if one year it turns out we need to spend zero on fleet, we have two point two billion dollars of projects that we can spend it on.

So we were just we're gonna pivot really quickly because we have a long list of deferred maintenance projects to jump on.

So just wanted to clarify.

When we started this proceeding, the the uh the comment to us was we're pre we're likely to propose a 74% rate increase for water and wastewater, and you've gone through kind of a priority setting and and I appreciate the the way you've done the what that rate increase means for different customer classes over those five-year period.

Um, and it might come down to what then is the bottom line increase.

It looks like to me, maybe it's a 50% increase, not 74%.

I'm just saying that you might want to highlight that uh at some point in this process.

And um, going back to um Mr.

Bass is the RAF tell us the point of contact for community engagement, or is it the city utility department?

How is that happening?

And what I'd like to do is offer um my time to go to some of those meetings when that when that happens.

The city uh reach strategy, uh we although we do have a sub that will help us with some of the business community stakeholders, it is mainly gonna be city staff that will be conducting these presentations and uh attending these meetings.

Uh, and we're gonna be the ones who are out there in the community answering questions.

So uh I think Graf tells us helping behind the scenes with some of the messaging, and definitely they're gonna be our technical resource, but we're gonna be the ones out in the community spreading the word and helping to answer these questions uh for stakeholders.

Uh one other one other comment about the the breakdown of the rate increase by customer class.

Um if you at some point can clarify what the difference is between small mediums, large business, and how you classify that at some point.

Yeah, David knows the answer, so he can tell you now.

So, Commissioner, it the commercial side is all over the map, right?

Um there's not a one size fits all, even when you talk about small, medium, and large, right?

So we're picking small as uh a commercial customer with a one-inch uh meter, um, two inch on the medium and four inch on the large.

Um, you know, but there's not uh, you know, and when we did that, we looked at at each of those uh each of the meter sizes, what are our you know highest number of meters at each of those sizes, and we just said here's a small medium or large, but again, it's all over the map in terms of you know the type of business, it's it's not as easy just just say typical, you know, commercial customer because there doesn't there doesn't exist one.

So an example might be even if you're a small business but have a large landscaping irrigation cost, you might be a larger customer volume-wise.

Sure.

Um I can give you like you know, examples of larger customers being the city, the county, um, hospitals, um, school districts, um, those are the ones that you would typically see at a larger meter size.

Um, on the small side, we can look and see like maybe a bank, a small commercial office, uh, uh an auto shop, you know, those are some examples of the different sizes.

But again, you could have a church that you know is is a small, is a one inch, but depending upon the size of the church, it might be a different size, right?

So again, it's just that one size fits all concept doesn't really exist.

Well, and I think that's where the the online tool will be helpful.

So, you know, if you're a business owner and you own your property, you can go on there and plug in your number.

Uh if you're a renter, again, you might not be impacted directly, but indirectly, but uh the dual will come in handy so people can go and plug in their address and hopefully get what the rates are going to be exactly for water and wastewater with the rate increase.

Very good.

I think that's a good idea.

Thanks a lot.

All right, Commissioner Cook.

Oh, okay.

Then I think that that is the end of our discussion.

Uh okay.

Um, so this item is receive and comment, and so no vote is required.

We'll move on to.

Actually, I think this is the only the last discussion item.

Sorry, let me get my bearings.

Oh, the next discussion item.

Is commissioner comments and ideas and questions?

Are there any additional commissioner comments ideas or questions?

Seeing none.

Oh, I think Holmes' using Everly's microphone, so yes, Commissioner Olson.

I'm I'm sharing this with uh Commissioner Eberley for where I've got so many members now.

So, my uh my comment is, and maybe it's a question, is are there it gonna be any more opportunities for site visits to any of the facilities?

I would say if you're interested in taking a tour of any of our facilities, we would be happy to have you.

We're not organizing like specific tour dates or anything as part of this process, but definitely if there's interest, uh we can arrange for it.

Thank you.

Okay, so that is the last item.

Um with that, I think that concludes today's agenda.

Thank you everyone for your participation.

The meeting is adjourned.