Pleasanton council advances process to increase water service rates

The Pleasanton City Council on Tuesday green-lit the first step in the process to raise water service rates, starting at a proposed 30% increase effective in November — a move city officials say is necessary to rebuild the city’s nearly depleted water enterprise fund.

While saying it was a tough decision for them, a 4-1 council majority voted to initiate the public notification process needed before finalizing a potential rate increase, which would mark the first time the city overhauled its water rates since 2011.

If approved at the Sept. 19 council meeting, the water rates would go up by 30% beginning Nov. 1, followed by another 20% increase beginning Jan. 1, 2025 and a 12% increase the following year.

Single-family residential customers would see an average increase of about $33 every other month during the first year, depending on their bimonthly water consumption, according to the staff presentation.

“The water enterprise fund is not financially sustainable,” said Tamara Baptista, interim director of Operations and Water Utilities. “The water rates tonight will make it in a better, stable condition.”

The package advanced by the council also proposed three years of sewer rate increases of about $1.50 per bill period starting also on Nov. 1 until June 30, 2024 and then again on July 1, 2024 until June 30, 2025. The sewer increase, which is based on consumer price index measurements, is not as substantial as the water rate increase because the city has not completed a sewer master management — once that has been completed, the city will undergo a full sewer rate study just like it did with water.

The next step in the process will be to send ratepayers a notice of the rate increases in advance of the September public meeting meeting. Ratepayers should expect to see a notice in their mail early August regarding the rate increases in advance of the final public meeting on Sept. 19 where the council would consider finalizing the rate increases, according to city officials.

Councilmembers heard from five public speakers, all opposed to the new water rate proposal, during their special meeting held at the city’s Operations Services Center instead of the council chambers on Tuesday night.

The option to raise the water rates is not something that is new to the city, as it had previously planned to raise them back in 2019. At the time, city officials were planning to conduct a water rate study but due to the COVID-19 pandemic, they had to put a pause on the study.

According to staff, the city has implemented inflation cost increases during the last 12 years, but due to the pandemic, they have not increased the rates at all during the last three years in order to be mindful of the burden it might have put on ratepayers at the time.

“This city — and I was part of it — made a mistake by not instituting rates back a few years ago,” Mayor Karla Brown said during the meeting. “Three years with no rate increases is exactly how we created this problem.”

The City Council had also approved water and sewer rates to increase annually in 2015 based on inflation without accounting for the city’s population growth. When the city also found PFAS chemicals, otherwise known as forever chemicals, in its groundwater wells, it forced the city to relook at its water rates in order to fund future projects to address those chemicals, which officials say is currently not possible due to the little money available in the water enterprise fund.

Recent droughts and mandatory water conservation also led to a decrease in the city’s water enterprise fund, which is separate from the city’s general fund in that it is intended to be self-funded through water sales, according to city officials.

It is because of that future growth and the need for short- and long-term water infrastructure projects that City Manager Gerry Beaudin stressed the importance of taking what he said was a “pretty big step” in resetting the water enterprise fund by replenishing the fund’s reserves.

“The reality is, we got behind with rates relative to the financial needs to operate the system,” Beaudin said.

He said increases based solely on inflation are not enough, which is why staff, as directed by the council, have been working on addressing the quickly depleting water enterprise fund.

If not approved, Beaudin and Baptista stressed that the water enterprise fund will run out of money and will actually go into the negative as early as 2025.

But if the rates increase, as planned, then the enterprise fund would be able to barely meet its reserves goal of 35% by 2026.

One of the other main reasons why Beaudin stressed the importance of not just hitting the reserve goal, but also in replenishing the enterprise fund, is that the city needs that money to be available for future repairs to things like water pipes and pumps.

“If we have, let’s just say 300 miles of pipe in our community, the goal is to replace pipes every 100 years … which means we would need to replace three miles of pipe per year. Each mile of pipe costs $3 million, and so if you’re replacing three miles of pipe per year, and you’re estimating in today’s dollars, $3 million per mile, it’s $9 million per year,” Beaudin said.

“And those costs, that’s just state of good repair, keeping the system functioning,” he added. “It doesn’t account for a pump station that needs to be replaced, and the lifecycle costs that need to be built into the repair replacement schedule for those as well. So what’s happened over time is as our infrastructure has aged, our rates haven’t kept up with the growing need.”

But if the rate increases are approved in two months, that would get the city to the starting line in terms of being able to set itself up for future projects to tackle PFAS and other state-of-good-repair maintenance projects where Beaudin the city has fallen behind.

He also pointed out, along with Baptista, that the city will also be looking to use an array of different funding sources for these projects including state and federal funds as well as money obtained from a class action lawsuit against 3M Co., a chemical manufacturing company that has been linked to making products that contain PFAS, which have contaminated water suppliers across the U.S.

The main point that Beaudin, staff and the council majority said they wanted to get across to the public was that the rate increase is the first step in getting ready to do future work to improve the city’s water quality and supply. Beaudin said that even though staff don’t like being in this position of raising rates, no raise or even lower rate increases will bring consequences.

“There’s always an opportunity to do less, but it means that things cost more in the future,” Beaudin said. “The rate increases that we would have to entertain in future years would be significantly higher than if we were to take this more, I’ll call it an aggressive approach, in addressing issues in the first three years.”

While the majority of the council did support the motion to send the notice to ratepayers and get the process of increasing the rates started, Vice Mayor Jack Balch was the only to say no because he wanted staff to reevaluate the rates due to the fact that the city will be looking at securing a $6 million loan.

According to staff, the loan is intended to help implement near-term water system improvement projects, as well as advance the water supply alternative design and pre-purchase of equipment costs. The debt service associated with the loan is about $4.1 million, which is 11% of the proposed rate increase revenues.

But Balch argued that the loan “significantly changes the amount of money we need” and that staff should have spent more time assessing the increases, especially because the city still does not know what water supply alternative it will be going with in the next coming months.

“We are only three to four months away from choosing a water supply alternative path. So my slight challenge is we are looking at years two and three, with some finality to them but I believe we will probably be looking at what to do with those very shortly,” Balch said.

Despite Balch’s concerns about the timeline of Pleasanton’s water supply options, the rest of the council voted to move forward with the rate increase process — with the emphasis on how, according to data from the East Bay Municipal Utility District, Pleasanton’s water rates would still be lower than its surrounding cities.

“The headline is: With a 30% rate increase, we’re still the lowest water rates around,” Councilmember Julie Testa said.

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