Pleasanton council approves water rate hikes for PFAS treatment funding plan

Pleasanton water ratepayers can expect a bigger water bill in the future after the Pleasanton City Council unanimously approved a funding plan for final design of the city’s per- and polyfluoroalkyl substances (PFAS) treatment and wells rehabilitation project on Tuesday.

“If you’re a big, big water user, it might get expensive,” Mayor Karla Brown said before casting her vote at the Sept. 7 council meeting.

City officials are currently proceeding with the estimated $46 million project’s final design to address the detection of PFAS — synthetic chemicals found in common household items like paint and known to be harmful to humans — in the city’s wells. About $3.3 million for design costs has already been allocated from the water operating fund, leaving $42.7 million in water operating funds, water connection fees, and debt financing to pay the estimated remainder of the project.

During a presentation on Tuesday, city staff said ratepayers will pay an up to $11.60 increase on their bimonthly water bills under the funding plan, assuming a 4% interest rate. Actual water rates charged would be adjusted accordingly, should actual interest rates be lower. Staff said the strategy will reduce the impact to water rates while ensuring funding is available when the project is ready for construction or obtaining equipment.

“This is going to ensure operational reliability of our wells, something I think we’re at risk for one,” Councilmember Kathy Narum said on Tuesday. “To have that reliable source of clean water for $5 a month on average … is actually less cost than I thought to construct this project would be.”

Under the plan, an additional $6 million will be allocated to the project for the fiscal years 2023 to 2025 capital improvement program (CIP), with $4 million of that going to the water fund’s annual allocation to the CIP.

Another $5.3 million in water connection fees will also be allocated, for about 11.5% of total project costs. The current water connection fee fund balance is $4 million, which could be entirely allocated to the project. According to staff, the remaining $1.3 million in water connection fee revenues will come from future collections, but the city would likely need to borrow against those future collections to ensure funds are available “in a timely fashion.”

The city, which collects the fees from new development to offset impacts on the city’s water infrastructure, has not updated its water connection fees since the 1980s. An update of the water connection fees is being planned for by the end of 2023, after the Water System Master Plan is completed, staff said.

Councilmember Valerie Arkin said residents have shared concerns about “the sheer high cost of this endeavor” and are “wondering, is there a guarantee that this is going to work.”

“Is there anything we can recoup if for some reason it doesn’t work?” Arkin said. “Because it’s a huge investment, huge amount of taxpayer dollars, and I have gotten that from the public.”

Todd Yamello, city utilities planning manager, said the PFAS treatment media “is commonly used to remove lots of different contaminants and it’s done successfully” with projects already using the same material to remove PFAS, including many federal remediation sites.

“I don’t think there’s a lot of risk in the media being able to remove it. I think where there is risk is the cost to do it annually,” Yamello said. “We’ve tried to do testing on our water to see how quickly you basically go through the material and have to replace it to remove the contaminants, and that’s where we focused our efforts.”

Yamello added, “I’m fairly confident that there’s industry proof out there that it will remove contaminants; it’s just going to become how expensive is it for us at our site.”

In an effort to recover PFAS mitigation costs, city officials also filed a lawsuit against manufacturers of fire-fighting foam and the chemicals used to make them. The lawsuit was consolidated before the U.S. District Court in South Carolina, along with over 500 similar lawsuits.

While it’s uncertain if the city’s litigation will be resolved or a settlement is received, staff said the project’s principal debt will be reduced if any settlement proceeds are received before incurring more project debt. If a settlement is received after incurring debt, the settlement proceeds will be used for debt service payments.

A similar approach will also be used if the city is approved for a grant up to $1.5 million for PFAS remediation projects from the federal Bureau of Reclamation Smart Water Program.

The city will also seek a state revolving fund loan; staff said they will begin the process to issue revenue bonds, “if it looks like the state is unable to meet (the) project timeline for loan funds by May 2022.”

A proposal to purchase more water from Zone 7 Water Agency was rejected on Tuesday, on the grounds that the city’s water rates would jump 42% to purchase the same amount of water currently pumped by the city, compared to an up to 22% rate increase to issue debt. Staff noted that the rate increase “associated with debt service will remain steady and eventually reduce once the bonds are fully defeased in 30 years.”