Special Notice / Hearing: None__
Vote Required: Majority
To: Honorable Board of Supervisors
From: Ann M. Stillman, Department 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, March 24, 2026, 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 9, 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 April 8, 2025, staff presented a proposed increase to water rates and charges to this Board during the public hearing. As part of the Proposition 218 process, a total of 29 valid protests were received out of 87 parcels in CSA 11. Although this number did not constitute a majority protest, this Board expressed concerns about community outreach and public understanding of the proposed increases. As a result, this Board took no action on the proposed rate adjustments and directed staff to re-engage with the CSA 11 ratepayers to provide additional information, gather further input, and return with an updated recommendation at a future meeting.
On May 20, 2025, this Board adopted Resolution No. 081160, which executed a five-year agreement with Bracewell Engineering, Inc. (Bracewell), based on a competitive request for proposal process, for operation and maintenance services to the two small County governed water systems, CSA 7 (La Honda water system) and CSA 11.
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. These newer 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 monthly meter service charge and a water rate charged per unit of water consumed (1 unit = 100 cubic feet (HCF) or 748 gallons of water) per usage tier. 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.
Updates to Rate Study Assumptions
Several updates have been made to the current rate study calculations and proposed rates since the previously proposed rates in April 2025. The connection charge revenue from one service connection payment has been incorporated in the actual revenue for FY 2024-25. The study also assumes the anticipated connection of the Pescadero High School in FY 2025-26, which will generate new revenue through connection fees, account service fees and water usage charges. However, connection charges are an inconsistent source of revenue for CSA 11 and are not used in the determination of the rates needed to support ongoing operation and maintenance. The rate study calculations have been updated to reflect the approved operation and maintenance contract with Bracewell for FYs 2025-26 through 2029-30. These updates provide a more current financial analysis to support the rate calculations and recommended rates and charges.
The proposed rate increases are significant, but necessary to adequately support CSA 11. The 22 percent annual increase for the next 5 years is a more gradual increase than previously proposed. The annual increase of 22 percent can be compared to the 116 percent Consumer Price Index increase for fuels and utilities in the San Francisco Bay Area over the last 13 years (2012 to 2025). 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 $119.19 bimonthly, which is comprised of $50.87 (11 units at $3.28 and 3 units at $4.93) for water used and $68.32 ($34.16 per month) for the monthly meter service charge. This would equate to an increase of $21.48 per billing cycle or $10.74 per month or $128.88 per year for the average customer for FY2026-27.
CSA 11 recognizes that any rate increase may present challenges for customers, particularly those on fixed incomes. The revised rate structure has been designed to balance financial sustainability with affordability by phasing in adjustments gradually over several years, rather than implementing steeper increases in the initial years as previously recommended to this Board. This approach promotes rate stability and provides customers with time to adjust to incremental changes.
In addition, the proposed structure offers a clear and predictable path toward achieving the target fund balance necessary to support long-term system reliability, ongoing operations, and future capital needs.
Without the rate increase, CSA 11 cannot generate sufficient revenue to support adequate operation of the system. Significant increases are proposed to align rates with where they would be if annual adjustments over the past 13 years had been made. 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
In April 2025, the Department released a competitive Request for Proposals (RFP) for professional operation and maintenance services for CSA 7 and CSA 11. Two firms submitted proposals in response: Bracewell and Natural Systems Utilities (NSU). NSU was identified by members of the community as a potential operator for the system; however, following evaluation of both proposals, the Department recommended award of the contract to Bracewell to this Board. The decision was based on a combination of qualifications, experience, and cost. NSU’s proposal was approximately $358,000 higher over the five-year term to manage both systems compared to Bracewell.
The RFP process confirmed that the current cost of operating the CSA 11 water system is consistent with prevailing market rates and is not inflated. Operating a small, rural, state-regulated water system such as CSA 11 is inherently more expensive due to the extensive technical, regulatory, and emergency response requirements distributed across a limited number of customers.
This Board adopted Resolution No. 081160 on May 20, 2025, executing a five-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 address CSA 11’s operating deficit for that year. Although the County General Fund covered costs associated with the August 2011 water outage, CSA 11 still faced a shortfall due to ongoing expenses and additional staff time to complete the rate increase effort. 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 2026-27 through FY 2030-31 or within five 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, and meetings, including a virtual presentation at the October 14, 2025 PMAC meeting, an in-person meeting on October 29, 2025 in Pescadero, and a second in-person meeting on November 17, 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 2030-31.
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 2026, 2027, 2028, 2029, and 2030). 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.
COMMUNITY 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. This estimate does not include the staff time required for the Prop 218 notice preparation and administration.
The proposed rates are anticipated to generate annual revenues between $110,000 to $212,000 over the five rate years. This is an estimated increase in revenue of approximately $35,000 to $137,000 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 2026-27 through FY 2030-31 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 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.