Workshop #3 – Water Rate Structure and Preliminary Fee Workshop

Posted on June 22, 2018

On June 4, 2018, a third Water Rate Study workshop was held with Sonoma City Council. This workshop also included a report on the recently completed Cost Allocation Plan (CAP) study, as the findings from the CAP feed directly into the Financial Plan portion of the Water Rate Study. The CAP study was completed to provide a professional best practice methodology and review of the City’s overhead costs, which in turn will determine the appropriate overhead costs to charge the Water Utility. City staff also presented a review of the annual water transfers to the General Fund to cover assets and services that the General Fund provides to the Water Utility and a recommended methodology for future allocations. The City Council provided direction on the Plan and the annual transfers so that those cost components can be included in the Water Rate Study Financial Plan.

The workshop also presented the most recent version of the Water Rate Study Financial Plan. The draft financial plan included recommendations from the draft Cost Allocation Plan which incorporates changes to the allocations of City staff assigned directly to the Water Division as well as those staff members whose time is now allocated to the Division indirectly as part of City overhead.

The City Council also reviewed two preliminary fee structures proposed by the Water Rate Study. Like the City’s current rate structure, both proposed fee structures include a fixed monthly meter charge based on the customer’s meter size. The first proposed fee structure would have a flat, uniform rate for the volumetric portion (the rate per unit of water consumed). The second proposed fee structure combines a fixed meter charge with tiered volumetric rates that make water more expensive per unit as more is used. This option would have three rate tiers rather than the current four conservation tiers. One of the key reasons to update the City’s water rates was to respond to changing court cases and laws, in particular regarding conservation tiers that have to be tied to actual costs of services versus serving the objective to incentivize conservation. The outcome is costs that were borne by the higher water users are now redistributed among all users and the base cost of water goes up even for most efficient water users.

In addition, staff sought direction from the City Council to finalize several components of the Water Rate Study. These elements included the desired level of reserve funding, which Capital Improvement projects from the Water Master Plan should be included in the next five years and which projects should be postponed until the next rate cycle.

The competing demands of providing the best water quality, service and reliability balanced against the desire to keep rate increases as reasonable as possible was discussed at length.

Based on the feedback provided at the June 4th workshop, Staff plans on bringing a full Water Rate report with recommended water rate changes for Council authorization and initiation of the Proposition 218 notice requirements at the June 25th, 2018 meeting. If approved at the June 25th meeting, the City plans to send notices and hold the Proposition 218 public hearing in late August.

Cost of Service & Rate Design Discussion Presentation

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