Utility Rates Advisory Commission Meeting on FY 2027-28 Water and Wastewater Rate Adjustments - September 23, 2026

The Utility Rates Advisory Commission (URAC) met on September 23, 2026, to review the Department of Utilities' updated proposal on water and wastewater rate adjustments for fiscal years 2027-28 through 2031-32. Staff presented the financial context, proposed rate structures, outreach efforts, and the Proposition 218 timeline. No members of the public spoke during the meeting, and the only vote taken was unanimous approval of the consent calendar.

Consent Calendar

• The commission unanimously approved the consent calendar, with a motion by Commissioner Olson and a second by Commissioner Gaspert. No public speakers were registered for this item.

Public Comments & Testimony

• No public speakers addressed the consent calendar, the rate adjustment discussion, or the non-agenda public comment period.

Discussion Items

FY 2027-28 Water and Wastewater Rate Adjustment Update

• David Levine, Long-Range Financial Planning Manager, presented the update. He explained the rate-setting process under Proposition 218: an independent consultant determines total revenue requirements, a cost-of-service analysis allocates costs to customer classes, and rates are then designed to recover each group's proportional fair share. Rates must be proportional and cannot subsidize one group for another.
• The water fund five-year outlook shows a deficit of approximately $10 million in FY27 after voluntary budget reductions, with larger deficits in other years. Staff stated that the $25.5 million capital projects emergency reserve will be fully used in FY29, leaving no additional funds to cover the deficit.
• The wastewater fund faces similar pressures, including inflation, supply chain disruptions, labor contract salary increases, new regulations, and COVID economic impacts since FY20. Staff noted prior mitigations: voluntary internal budget reductions, $50 million in grants, $39 million in debt refinancing savings, about $400,000 annually from administrative cost recovery, and about $200,000 annually from LED lighting and occupancy controls.
• Staff cited a $2.2 billion deferred maintenance backlog and approximately $1.5 million in average annual emergency repair costs, with risks to public health, the environment, and credit ratings.
• For residential water, proposed first-year rates are slightly lower, a few cents per year, than the June presentation; wastewater rates are unchanged. The typical single-family customer uses a one-inch meter and 10.8 CCF per month, where 1 CCF equals 748 gallons. The rate structure shifts from approximately 62% fixed and 38% variable to 53% fixed and 47% variable, reflecting that nearly 100% of customers are now metered.
• Commercial drinking water rates vary by customer class and meter size. Medium and large commercial water rates decline in FY28 because the cost allocation between fixed and volumetric components changed, now that meter data are available. Commercial wastewater rates increase, in part because the consultant applied the updated AWWA M1 methodology, which uses total meter capacity to allocate wastewater costs.
• The city's wastewater rate covers collection and conveyance; treatment is billed separately by SAC Sewer. For a typical single-family customer, the proposed first-year city wastewater rate is $33.22, plus about $47 for SAC Sewer treatment, for a combined total around $80 per month.
• Regional comparisons show Sacramento's water rates remain lower than most neighboring agencies even with the increase. Wastewater rates are competitive regionally, including comparison with other combined-sewer agencies; Sacramento is one of only two California cities and two West Coast agencies operating a combined system.
• The proposed rates fund the revenue gap, build reserves, and cover high-priority capital and operational needs, but staff said the adjustment only covers minimum needs. At least one additional five-year rate cycle will be needed to significantly dent the deferred maintenance backlog. Staff's long-term goal is rate smoothing with smaller, more frequent adjustments tied to CPI.
• Outreach began in July, targeting industry groups, hard-to-reach populations, community associations, and the public. Roughly half of the invited groups had been briefed as of the meeting, with meetings continuing through November.
• The formal Prop 218 notice was mailed to affected property owners in mid-August. Written protests must come from a majority of affected parcels, meaning 50% plus one, to block adoption. Property owners may also submit written objections stating specific non-compliance reasons; the city must respond in writing and council must approve those responses before the rate hearing. The written-objection deadline is October 1, 2026. Staff reported no written objections received to date, though some written protests had been received.
• The scheduled timeline is: council review of written responses on November 17, 2026; URAC rate hearing with public testimony and protest results on December 2, 2026; council vote in February/March 2027; and rates effective July 1, 2027.
• Commissioner Johnson noted that the consultant's rate study has been published and is publicly available. She asked about deferred maintenance funding in the current and future cycles; staff said the 20-year plan in the rate study assumes another five-year cycle, with future increases likely in the teens percentage-wise early and below 10% in later years such as FY37, before moving to smoother 2-4% adjustments.
• Commissioner Steinbaum praised the online bill estimator but suggested adding a link for auto-pay customers who do not receive paper bills. She also asked staff to contact the Hollywood Park Neighborhood Association; staff said they would check outreach coverage.
• Commissioner Burdock asked why medium and large commercial water rates decrease and why commercial wastewater rates jump. Staff explained the meter-data-driven cost allocation and the updated AWWA M1 methodology. Commissioner Burdock also asked about the difference between the $33.22 city wastewater rate and the roughly $80 combined figure; staff clarified the additional charge is SAC Sewer treatment.
• Commissioner Olson asked about project ranking, the remaining balance needed for zero-emission vehicle compliance, and whether regional rate comparisons are truly apples-to-apples. Staff said they would follow up with the consultant on the comparison methodology and the vehicle grant balance. Olson expressed a desire to avoid sending staff back for additional work and encouraged commissioners to review materials before the December 2 hearing. Charlie Cunningham, Wastewater and Drainage Division Manager, explained that past council policy limited increases to single digits, contributing to the deferred maintenance backlog and the current need for larger increases.
• A commissioner asked about cybersecurity threats to water and wastewater operations. Staff said they receive daily alerts from WaterISAC, AWWA, Cal OES, and CISA, and have improved their assessment score from 16 in 2013 to 93 on the most recent EPA-required AWIA assessment, placing them in the top 5% of assessed agencies; they are working toward 100. Michelle Carey, Engineering Division Manager, said the SCADA program has $4.3 million from the water fund and $500,000 from the wastewater fund over the current five-year budget.
• Staff responded to a question about the Del Rio Trail sewer project: it is a SAC Sewer-funded lining project for a critical 72-inch combined sewer pipe heading to the EchoWater treatment facility. A prior River District/3rd Street relief project was development-impact-fee funded.

Key Outcomes

• The consent calendar was approved unanimously; no other formal motions or votes were taken.
• The URAC did not vote on the rate adjustment at this meeting; the formal Prop 218 rate hearing is scheduled for December 2, 2026.
• Staff will follow up on commissioner requests: checking the bill-estimator usability, reaching out to Hollywood Park Neighborhood Association, possibly having the consultant present technical material, providing zero-emission vehicle funding details, and providing further regional comparison methodology information.
• The city council is scheduled to review written responses to Prop 218 objections on November 17, 2026, with rates to take effect July 1, 2027 if adopted.