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After going back and forth on different scenarios, the Pleasanton City Council unanimously accepted staff’s recommendation this week to advance the process to finalize changing the city’s water rate structure from a tiered system to a uniformed one where very low water users will see their bill more than double by the end of four years.
According to the city’s bimonthly impacts reports for single-family customers with a 5/8-inch meter, average water consumers under the proposed rate structure can expect a nearly $20 bump to their current water bill by next year but by year four, that difference jumps to over $80.
While none of the preliminary water rate increases discussed on May 6 were approved — that decision will occur in October — many on the dais expressed displeasure with the fact that the city has to do this process again following the contentious 2022 rate-setting process. But, according to public works director Siew-Chin Yeong, these increases are necessary.
“Talking about water rate increases are never easy. We recognize that rate increases can create financial pressure for residents and businesses,” she said. “At the same time, we are stewards of our community infrastructure. We have the responsibility to ensure the long-term sustainability of our water system.”
Now, staff will take the council’s direction and develop a final rate study that they will present on June 3, which will include the actual increase recommendations — along with other fees for connections and drought — before the city begins its communication process to inform residents about the proposed changes. That will eventually lead up to a final public hearing and potential adoption of the new rates on Oct. 7.
Before the June 3 meeting, staff will also follow the council’s direction to provide further analysis on staff’s original recommendation to eliminate the “Senior Discount Program” where seniors get 20% off their water bill following several comments from the dais regarding keeping the program in some form or phasing out its discontinuance.
The program, according to staff, serves about 3,200 of seniors who are 65 years or older but it also costs the city $300,000 per year, which comes out of its general fund.
Councilmember Julie Testa staunchly opposed eliminating the discount because many seniors rely on a fixed income and increasing their water rates — and most likely their sewer rates in the future, as she pointed out — while removing the program could put those older residents in an extreme financial burden.
“I want to make sure that our very vulnerable seniors who have lived in a house for 30 years aren’t forced out,” Testa said.
The “Low-Income Discount Program”, which serves 224 customers and offers a 30% discount, is not being recommended for elimination but will still be analyzed further along with the senior discount.
The three-step, rate-setting process started off last September when the city contracted with Water Resources Economics, representatives of which presented the bulk of information during the council meeting, to conduct a comprehensive water rate study.
The first step of developing that study was to adopt a water system management plan and water enterprise financial analysis to set the foundation and framework for the study — both of which have been approved by the council.
The overall process aimed to identify Pleasanton’s water system’s “long-term infrastructure, operations, and maintenance needs,” and establish a “financial framework to support them,” according to a May 8 press release from the city.
The financial analysis also outlined the implementation of an enhanced project delivery model from the water system management plan which included a revenue increase of 15% for the first two years and 8% for the following two years.
The second step of the process, which was presented on May 6, was the cost-of-service study and rate design analysis that evaluated the different rate structure amendments and proposed the water rates for the next four years.
One main proposal that came out of the second step was to collapse the city’s current tiered water structure, which has been the standard for the city for many years as a way to promote water conservation. According to the city, in a tiered rate structure, “customers pay less per unit of water in the lower tiers, while they pay more per unit in the higher tiers.”
But as Water Resources Economics President Sanjay Gaur pointed out, there are some issues with that system, including some legal challenges after recent cases have highlighted potential litigation risks associated with tiered rates. The law, known as Proposition 218, “prohibits rate discrimination and requires that all rates accurately reflect the actual cost of service,” according to the city.
Gaur said tier definitions must be rigorously cost justified, which is why in order to enhance the city’s legal defensibility and maintain consistency across customers, staff recommended a uniform variable charge for all customers.
“Courts have ruled that if (agencies) keep tiered rate structures, they need to demonstrate the cost basis for each tier,” Councilmember Jeff Nibert said, to which Gaur responded it would be hard to do so.
Under the new rate structure, which will be woven into the proposed rate study that still needs to be voted on by the council later this year, all customers will be billed the same rate for each water unit regardless of use.
“By adopting a uniform rate structure, customers with lower water usage will likely experience a greater impact on their rates than those with higher water usage,” according to the city press release. “A chart detailing the impacts based on the number of water bills each year … indicates that 52% of bimonthly water bills are estimated to increase by $20 to $40 in the first year.”
The other main point of contention was staff recommendation for achieving full cost recovery of Zone 7 Water Agency fixed costs. According to staff, fixed charges are established fees for customers, regardless of their water usage. These charges are constant and are determined by the size of the customer’s water meter.
Water customers currently have two fixed charges on their water bills: one for city water delivery and another from Zone 7 for supplying the water — Pleasanton currently purchases 100% of its water from Zone 7.
“Currently, the city’s water rate structure directly recoups only 32% of Zone 7’s fixed expenses, with the remainder covered by the variable charge based on consumption,” according to the city’s press release. “To enhance revenue stability and reduce financial risk, it is recommended that the city fully recover Zone 7’s fixed costs. Therefore, these fixed charges would be billed to customers at the rates set by Zone 7 as a pass-through.”
While one of the main points of the consultants and staff that night was that the proposed rate structure are comparable or lower than neighboring water agencies in the Tri-Valley, Mayor Jack Balch pointed out that water users who fall within the very low water use category — those who use 5 ccf, or about 3,700 gallons, of water bimonthly — will see a more than 100% increase in their bill by year four.
Gaur told the dais that — apart from lowering the rates — there could be a possibility of enacting some sort of lifeline program but that the city would have to use money from its general fund, something that Balch acknowledged as a hardship given the city’s current budget challenges.
The other option was to go with a 75% recovery of Zone 7 fixed costs — Testa supported this plan at first — but that alternative did not receive enough support from the rest of the council.
Nibert, along with councilmembers Matt Gaidos and Craig Eicher, expressed support for the full cost recovery plan, with Gaidos noting that he was still open to more analysis. Balch at one point tried to push a phased approach, but that eventually died after discussions with staff and the consultants.
Once staff returns to the council to present the final water rates, connection fees and drought rates, the council will look to approve a notice and accept the report on June 15 so that those notices, which include information about the new rates, can be mailed out to residents by July 30.
The goal will be to adopt those new rates by Oct. 7 so that they can go into effect by Jan. 1, according to city officials.
