Special Notice / Hearing: None
Vote Required: Majority
To: Honorable Board of Supervisors, Acting as the Governing Board of the County Service Area No. 11
From: Ann M. Stillman, Director of Public Works
Subject: Water Rates and Charges for County Service Area No. 11, Pescadero Area
RECOMMENDATION:
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Acting as the Governing Board of County Service Area No. 11, adopt a resolution:
A) Setting Tuesday, April 8, 2025, at 9:00 A.M. at the regularly scheduled Board meeting as the time and place for a public hearing on the water rates and charges for County Service Area No. 11; and
B) Directing the Director of Public Works to send a notice of said hearing to each property owner and active account holder within County Service Area No. 11.
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BACKGROUND:
County Service Area No. 11 (CSA 11) was established in 1988 to finance the development of a public groundwater source and to provide service as the water provider for the Pescadero community. Water for CSA 11 customers is provided from an underground aquifer and is delivered to 102 water service connections through approximately 2.2 miles of water mains.
On December 8, 1992, this Board adopted Resolution No. 056747 establishing regulations and rate schedules to meet the anticipated financial obligations for CSA 11.
On September 3, 2003, this Board adopted Resolution No. 066229 amending the water service rates and charges for CSA 11.
On June 26, 2012, this Board adopted Resolution No. 072027 setting the current tiered bi-monthly water service rates and monthly meter service charges for CSA 11. Revenue generated from these rates is not sufficient to adequately operate, maintain, and administer CSA 11.
On October 20, 2020, this Board adopted Resolution No. 077810 executing a three-year agreement with Bracewell Engineering Inc. (Bracewell) for operation and maintenance services to two small County governed water systems, CSA 7 (La Honda water system) and CSA 11, with the option to extend the agreement for two (2) additional years. On September 22, 2025, the Department issued Amendment No. A1 to the agreement extending the agreement through October 19, 2025.
The process to be followed for adopting the water rates and charges includes:
1. Adopt a Resolution of the proposed water rates and charges.
2. Hold a public hearing and receive testimony on the proposed water rates and charges.
Article XIIIC and XIIID of the State Constitution (Proposition 218) requires that notices be sent to property owners or active account holders of real properties who may be directly liable to pay for water service in CSA 11 alerting them of the public hearing to consider any new or increased property related fees, and a mechanism for rejecting the fees via a “majority protest” at the public hearing. We are recommending that this Board direct the Director of Public Works to notify each affected property owner or active account holder in CSA 11 of the proposed water rates and charges by mail and to explain that protests to the rates and charges must be in writing.
If there were a successful majority protest, this Board would be prevented from setting the recommended water rates and charges.
DISCUSSION:
Water Rates and Charges
The CSA 11 water rates and charges were adjusted last in 2012. Subsequent to the 2012 rate adjustment, Department of Public Works (Department) staff applied for and received a $700,000 grant from the State of California Proposition 84 Integrated Regional Water Management Plan to fund the design and construction of a deeper well and an additional storage tank to address CSA 11’s depleting groundwater supply and sustainability issues. The project was completed in August 2019, the County General Fund provided an additional $1,376,075 for the project, and CSA 11 revenues did not fund any portion of this project. The project extended the aquifer life, and provided adequate water supply, emergency response, water reliability, and groundwater improvement for the CSA 11 customers. The project also included the installation of a new alarm system for remote notification of pump shutdowns or low tank levels. The new facilities require additional operation, maintenance, and monitoring by Bracewell and their agreement reflects the costs for the additional work.
The current water charges are comprised of a water rate charged per unit of water consumed (1 unit = 100 cubic feet (HCF) or 748 gallons of water) per usage tier and a monthly meter service charge. Customers are billed every two months or six times per year. Water billings are the only revenue source for CSA 11. The current and proposed water rates and charges for CSA 11 are as follows:
Italics in parentheses are net increases (annual/monthly for meter charges and amount/HCF) over the previous year’s rates.
The proposed rate increases are significant, but necessary to adequately support CSA 11. The annual increase over the five years ranges from 50 percent to three percent per year, with the higher percentage increases in the first two years (50 percent in 2025 and 30 percent in 2026) for a total of 80 percent. The first year increase of 50 percent is slightly above the 48 percent Construction Cost Index published by the Engineering News Record over the last 12 years (2012 to 2024) but less than the 94 percent Consumer Price Index for fuels and utilities in the San Francisco Bay Area over the same period. Water consumption records indicate a majority of CSA 11 customers' water usage is within the Tier 1 (53 percent) and Tier 2 (36 percent) billing structure. The average residential customer with a 5/8” meter that uses 14 units of water bimonthly currently pays $97.71 bimonthly, which is comprised of $41.71 (11 units at $2.69 and 3 units at $4.04) for water used and $56.00 ($28.00 per month) for the monthly meter service charge. With the proposed rate increase in the first year the same customer would pay $135.42 bimonthly, which is comprised of $62.62 (11 units at $4.04 and 3 units at $6.06) for water used and $72.80 ($36.40 per month) for the monthly meter service charge. Without the rate increase, CSA 11 cannot generate sufficient revenue to support adequate operation of the system. Significant increases are proposed for the first two years to align rates with where they would be if annual adjustments had been made over the past 12 years. The significant factors influencing the need for these rate increases are summarized below.
CSA 11 System and Compliance
The California State Water Resources Control Board Division of Drinking Water (DDW) has regulatory responsibility for small water systems that include CSA 11. DDW requires CSA 11 to perform specific water quality testing as regulations change, keep an up-to-date Operation and Maintenance Plan (Plan), provide 24 hour supervision by a certified operator during water treatment operations, complete a watershed sanitary survey periodically, implement a cross connection control program, and make necessary improvements to the system to ensure compliance with Federal and State regulations. These requirements have resulted in a substantial increase in staff time and contract services.
Operational Cost and Emergency Reserve
This Board adopted Resolution No. 077810 on October 20, 2020, executing a three-year agreement with Bracewell for operation and maintenance services for County maintained small water systems as it is not feasible for Department staff to be certified operators. Bracewell has been providing certified operators to CSA 7 and CSA 11 since October of 2011, shortly after the Department’s certified operator left County employment. Bracewell’s operation cost has increased over 70 percent since the last rate adjustment in 2012. The operation cost includes routine operations, additional well monitoring to comply with DDW requirements, and backflow device inspections.
Water System Loan Repayment
During FY 2012-13 the Department secured a $58,800 water system loan to offset the August 2011 water outage costs. CSA 11’s revenues over the years have not been sufficient to repay any portion of this loan. The proposed increases include a revenue component to repay the loan during FY 2024-25 through FY 2029-30 or within six years.
Public Input Process
Staff has been communicating with customers, property owners, and representatives of the Pescadero Municipal Advisory Council (PMAC) regarding the need for a rate increase and the proposed rates. These communications have taken place through letters, emails, phone conversations, meetings, and at an in-person meeting on January 21, 2025 in Pescadero.
The Department has evaluated both public input and the revenue requirements for CSA 11 and determined that the proposed rates are necessary to finance the following:
1. Continue routine and emergency operation and maintenance of the CSA 11 system per the Plan approved by DDW.
2. Administration of CSA 11 to comply with reporting requirements, customer support, and customer billing.
3. Inspections to determine the condition of the wells and storage tanks.
4. Minimum fund reserve to respond to emergency events.
5. Repayment of the water system loan to be completed by FY 2029-30.
The Department recommends that the proposed rates be approved and evaluated annually to determine their adequacy. It is anticipated that the rate increases will continue to encourage water conservation. Revenue estimates are based on the lower range of the annual average in water use.
The proposed rate increases will be used to calculate charges beginning with the July billings for each fiscal year (mailed in July 2025, 2026, 2027, 2028 and 2029). The July billings will include water consumption for a portion of May, all of June, and a portion of July.
The water rates, charges, and other associated CSA 11 charges are described in Exhibit A of the Resolution. The increases to other associated CSA 11 charges, where applicable, were based on the same annual percentage increases as the water rates.
EQUITY IMPACT:
Adoption of the water rates and charges will provide CSA 11 with the necessary revenue for the continued provision of potable water service to its customers, provide reliable water, invest in system improvements, and ensure the long-term sustainability of the water system.
FISCAL IMPACT:
The Department estimates that it will cost approximately $408 ($4 per rate payer in CSA 11) to print and mail individual Prop 218 notices to each property owner and active account holder in CSA 11. This cost will be paid from CSA 11 revenue.
The proposed rates are anticipated to generate annual revenues between $101,000 to $194,000 over the five rate years. This is an estimated increase in revenue of approximately $33,000 to $126,000 over the current rates. The increases are necessary to fund all routine and non-emergency operations and maintenance activities to meet current Federal and State regulations for FY 2024-25 through FY 2029-30 with small amounts allocated for reserves and loan repayment. However, rate evaluations will need to be conducted periodically to determine the adequacy of the proposed rates. The proposed rates are not sufficient to fund for any capital improvement projects.
There is no direct impact to the General Fund. However, water service charges are levied on County leased/owned properties that are provided water by CSA 11, including the existing County Fire Station Number 59 on Pescadero Creek Road.