City Council

Mayor Donald Williams Vice Mayor Irais Lopez-Ortega Councilmembers Lisa M. Gift AGENDA Scott Cooper City Council Kevin Eisenberg Tuesday, October 3, 2023 - 6:00 PM Hybrid Below is information on how the public may observe and participate in the meeting. The City recognizes that not all residents have the same ways to stay engaged, so several alternatives are offered. Please participate in the meeting by observing or listening to the meeting in one of the following ways: 1. Watch on your TV – Napa Valley TV Channel 28 (call your cable provider to ensure you have a City of Calistoga coded cable box) 2. Listen or participate via your phone – dial 1-669-900-6833, enter webinar ID: 829-0729-5419, password: 123201 3. Watch or participate online via Zoom - click this link and enter password: 123201 4. Watch online via YouTube Live at youtube.com/cityofcalistoga COMMENT ON THIS MATTER DURING THE MEETING: Please participate in the meeting by providing public comment on any item on the agenda or any item of municipal concern. To comment during a virtual meeting (Zoom), click the "Raise Your Hand" button to request to speak when Public Comment is being taken on the Agenda item. You will be unmuted when it is your turn to make your comment for up to 3 minutes. After allotted time, you will be re-muted. WRITTEN COMMENTS: Alternatively, you may provide public comment on any item on the agenda or any item of municipal concern via email. Please submit your comment, limited to 350 words or less, via email to publiccomment@ci.calistoga.ca.us. Written public comments submitted by email should clearly indicate the Agenda Item No. or specify “Oral Communications” in the Subject Line for items not on the agenda and are requested to include the submitter’s full name. Comments received by 2:00 p.m. on the day of the meeting will be posted online with the agenda packet and included in the record but will not be read aloud. Comments received after 2:00 p.m. will be made part of the written record but will not be read verbally at the meeting. Note: The methods of observing or listening to the meeting or providing public comments may be altered or the meeting may be cancelled, if needed, due to certain technical disruptions. Page 1. CALL TO ORDER/ROLL CALL/PLEDGE OF ALLEGIANCE AND OPTIONAL PATRIOTIC ACTIVITY 2. REPORT FROM CLOSED SESSIONS 3. ORAL COMMUNICATION ON CONSENT ITEMS OR NON-AGENDA ITEMS This time is set aside to receive comments from the public regarding matters on the Consent Calendar or matters of municipal concern not on the agenda. Pursuant to Government Code section 54954.3 (the Brown Act), however, the Council cannot consider any issues or take action on any requests during this comment period. Speakers are encouraged to limit their comments to 3 minutes maximum so that all speakers have an opportunity to address the City Council. 3.1. 10.3.23 Public Comment 4-8 4. CITY MANAGER’S REPORT 5. PROCLAMATIONS/PRESENTATIONS/ AWARDS 6. CONSENT CALENDAR 7. PUBLIC HEARING 8. GENERAL GOVERNMENT 8.1. Receive the presentation for the final rate proposal and authorize staff to 9 - 56 mail customer notices to begin the Proposition 218 rate adoption process and set a public hearing date of December 5, 2023. Recommended Action: Approve utility rate proposal and authorize staff to notify customers to begin Proposition 218 process for rate adoption and set the public hearing date of December 5, 2023. Staff Report - Approve Utility Rate Proposal & Direct Staff to Notice Customers - Pdf 9. COUNCIL REPORTS 10. ADJOURNMENT NOTICE: If you challenge a city’s zoning, planning, or other decision in court, you may be limited to raising only those issues you or someone else raised at the public hearing described in this notice, or in written correspondence delivered to the City Council at, or prior to, the public hearing. Judicial review of any City administrative decision may be had only if a petition is filed with the court not later than the 90th day following the date upon which the decision becomes final. Judicial review of environmental determinations may be subject to a shorter time period for Litigation, in certain cases 30 days following the date of final decision. Pursuant to GC §54957.5 any writings/documents provided to a majority of the City Council regarding any item on this agenda will be made available for public inspection on the City website at www.ci.calistoga.ca.us. SUPPLEMENTAL MATERIAL RECEIVED AFTER THE POSTING OF THE AGENDA: Any supplemental writings or documents distributed to a majority of the City Council regarding any item on this Agenda, after the posting of the Agenda, such writings or documents will be made available on the City’s website and will be available for public review in the City Clerk’s Office located at 1232 Washington Street, Calistoga, California, during normal business hours and by appointment. AMERICANS WITH DISABILITIES ACT: The City can provide special assistance for persons with disabilities to participate in public meetings. To make a request for disability-related modification or accommodation please contact the City Clerk at ygalvan@ci.calistoga.ca.us or (707) 942-2807. If you need assistance or accommodation, please provide notice at least 48 hours prior to the meeting. For TTY/ Speech-to-Speech users, dial 7-1-1 for the California Relay Service, offering free text-to-speech, speech-to-speech, and Spanish language services 24 hours a day, 7 days a week. Se les pide por favor que avise con 48 horas de anticipación cuando haga un pedido para asistencia. Esto les da suficiente tiempo antes de la junta para permitir que la ciudad tome medidas razonables. POSTING: I declare a copy of this agenda was posted at City Hall, 1232 Washington Street, Calistoga, among other locations in the city limits of Calistoga, on Sept. 27, 2023, by 4:30 p.m. Page 2 of 56 Yudiana Galvan, City Clerk Page 3 of 56  Item #3.1. Page 4 of 56  Item #3.1. Page 5 of 56  Item #3.1. Page 6 of 56  Item #3.1. Page 7 of 56  Item #3.1. Page 8 of 56  Item #8.1. City of Calistoga STAFF REPORT To: Honorable Mayor and City Council From: Derek Rayner, Public Works Director/City Engineer Meeting: City Council - Oct 03 2023 Subject: Approve Utility Rate Proposal & Direct Staff to Notice Customers DESCRIPTION: Receive the presentation for the final rate proposal and authorize staff to mail customer notices to begin the Proposition 218 rate adoption process and set a public hearing date of December 5, 2023. RECOMMENDATION: Approve utility rate proposal and authorize staff to notify customers to begin Proposition 218 process for rate adoption and set the public hearing date of December 5, 2023. BACKGROUND/SUMMARY: The following rate study milestones have been accomplished: • July 19, 2022 - Council awarded Raftelis Agreement to complete rate studies. • October 5, 2022 - First open house overview of the study objectives, process, and to gather initial feedback. • October 20, 2022 - Prepared and published Frequently Asked Questions. • May 2, 2023 - Council Presentation and feedback on finance model initial assumptions, reserves policies, and debt financing discussion. • August 24, 2023 - Second open house to share capital reinvestment needs, water rate structure alternatives, rate study process, and informational stations for customer billing and conservation programs. • September 19, 2023 - Council reviewed and provided financial plan direction for rates proposal. • October 3, 2023 - Approve utility rate proposal and authorize staff to notify customers to begin Proposition 218 process for rate adoption and set the public hearing date of December 5, 2023. Financial Plan & Cost of Service Model The consultant, Raftelis Financial Consultants (RFC), has updated the final Financial Plan and Cost of Service (COS) models based on each of the following directions: • Lowering the share of revenue from fixed costs as much as legally and financially possible. • Incentivizing conservation by incorporating a two-tier water commodity billing for Single Family Residential (SFR) customers and a uniform rate for all other customer classes. • Forgiving the $1.6 million FY17/18 prior loan as contributed by the general fund. • Increasing reserves for both water and wastewater enterprise funds.to a minimum of four months of operating costs plus $1.5 million in emergency reserves; and a goal of four months of operating costs, plus $1.5 million in emergency reserves, plus one-year of average cash- funded capital. Page 9 of 56  Item #8.1. • Utilizing future debt financing, where possible, for capital improvement projects. • Utilizing Scenario 1 (“Right-the-ship”) for both water and wastewater enterprises, as presented on September 19, 2023. • Incorporating drought rates for adoption as part of the rate study but require future Council action at Council's discretion to implement them. • Considering using General Fund revenue to assist eligible low-income residents. ANALYSIS: Meeting the City Council's Goals in the Financial Plan & Cost of Service Model Future Debt financing will minimize rate impacts and provide inter-generational equity between users tomorrow that benefit through investment by users today. Based on the existing long-term capital program and financial plan, external borrowing for the water enterprise would be required as follows: $4 million in FY 2026-27, $9 million in FY 2028-29, and $8 million in FY 2031-32. No external borrowing is assumed for the wastewater enterprise. Additionally, the new rates aim to reduce fixed charges as a share of total revenues. The updated cost of service analysis and rate design, coupled with revenue projections, should recover approximately 35% of rate revenues from fixed charges, versus the current recovery of approximately 40%. This approach will encourage conservation while still complying with Proposition 218’s requirement that the rates be proportionate to costs of service. The Two-tier commodity rate alternative would only apply to SFR customers. Multi -Family Residential (MFR), which includes apartments and mobile home parks, as well as Commercial and Irrigation connections would maintain the existing uniform structure (single use rate for all units of water). The tiers are based on the City’s two water supply sources that are differentiated based on their unique costs, and other cost differentials within the SFR class. Traditionally, tiered rates are appropriate for the SFR class as water demand patterns are generally similar across the class. For example, similar indoor demands based on household size; similar seasonal irrigation demands; and having both indoor and outdoor demands on one metered connection. Conversely, MFR and Non-Residential users can have highly varied demand patterns that do not lend themselves well to tiered water use rates. Scenario 1 “Right-the-ship” for both water and wastewater enterprise will significantly increase year one rates, fully fund the CIP, borrow for projects, repay prior general fund loans (totaling $2,159,384 dollars). Rate plans account for the repayment of the following General Fund loans: $1,000,000 water enterprise and $1,159,384 for wastewater enterprise. In FY18 the city took a general fund loan of $1.6 million to cover water rights litigation expenses which will be forgiven as part of the new rates. Drought rates are temporary in nature and a surcharge to normal rates to recover the net revenue loss during times of reduced water use. They are only available during declared shortages or other water emergencies and only implemented at the sole discretion of the city council. One of the council goals discussed at the last meeting was the importance of keeping the 50% reserve in the general fund, consistent with the FY24 budget objective. By selecting the “right-the- ship” alternative, where general fund loans are repaid, offers an opportunity to potentially create additional general fund reserves that city council suggested could be used as a subsidy to assist eligible low-income residents in the future. Staff is working with the consultant to identify an annual Page 10 of 56  Item #8.1. level of general fund monies that would provide meaningful support to low-income customers. We expect to have estimates available by the time of the public hearing. Proposed Rates Taking into account the above goals, attached to the staff report are the schedules of proposed water, wastewater, and drought rates for FY 2023-24 through FY 2027-28. Also attached is the rate studies’ executive summary which discusses the study background, rate drivers for both enterprises, proposed revenue adjustments, and proposed rates. Proposition 218 Proposition (Prop) 218 was enacted in 1996 and added to the California Constitution to ensure that rates and fees are reasonable and proportional to the cost of providing service. Prop 218 procedures require notices to be mailed to each property owner 45 days prior to the public hearing on any proposed fee increase. Prop 218 prohibits the adoption of a fee increase if the majority of property owners protest in writing. Under Prop 218, the fee must not exceed the proportional cost of the service attributable to the property. To meet Prop 218's notification requirements, a detailed notice of proposed water and wastewater rate adjustments will be mailed to all property owners in the City service area 45 days before the City Council's approved Public Hearing date, which is recommended for December 5, 2023. Private water purveyors such as California American Water and California Water are regulated by the California Public Utilities Commission and are not subject to Prop 218 provisions. Council Direction Staff is seeking city councils’ authorization to proceed with the following: 1. Approve the executive summary included in this report that summarizes the final rates. 2. Approve the draft Proposition 218-required notice to customers. 3. Authorize staff to mail notices to property owners and customers to begin the Proposition 218 rate adoption process. 4. Authorize staff to set the public hearing date to December 5, 2023 Raftelis, the city attorney, and staff are working on completing the final utility rate study report. This report will document the final rate modeling assumptions and be published when the notices are mailed. Next Steps & Proposed Schedule The next steps towards adopting new rate schedules are: 1. October 20, 2023 - Mail notices to property owners to begin the Proposition 218 rate adoption process. 2. December 5, 2023 - Hold a public hearing to consider all written protests, and if protests are not received by the majority of parcels receiving water or sewer services, adopt the new rates as proposed. 3. December 19, 2023 - Second reading of ordinance adopting rates and rates become effective 30-days thereafter. 4. March 1, 2024 - Initiate new billing rates for all customers. If the proposed schedule above can be accomplished successfully, new rates would begin March 1, 2024. Rates cannot begin February 1, 2024, since this is mid-cycle in the two-month residential billing. CEQA STATUS: Page 11 of 56  Item #8.1. The recommended action is not a project under the definitions contained in the Guidelines of the California Environmental Quality Act (CEQA) and is therefore exempt from CEQA. FINANCIAL IMPACT: There will be no fiscal impacts for this report/presentation as they are a part of the adopted Resolution No. 2022-060, and part of Raftelis’ scope of work related to the utility rate study. ATTACHMENT(S): Finance Model Rate Study Attach 1 Finance Model Rate Study Attach 2 Finance Model Rate Study Attach 3 APPROVAL(S): Jessie Catacutan Approved - Sep 26 2023 Laura Snideman, City Manager Approved - Sep 27 2023 Yudiana Galvan, City Clerk Approved - Sep 27 2023 Page 12 of 56  ATTACHMENT 1 City of Calistoga Utility Rate Authorization Presentation City Council Presentation – October 3, 2023 Page 13 of 56 Item #8.1. 1  Aligning with Community Values and City Objectives Provide fairness, so all customers Ensure the utilities’ financial Promote affordability and pay their fair share for service, stability, to allow for $31 million in conservation so that customers regardless of their class critical capital reinvestment have more control over their bill and an incentive to conserve Page 14 of 56 Item #8.1. 2  Community Engagement 2 Open Houses 3 City Council Meetings 2 Bill Stuffers 2 Press Releases Dedicated City website Page 15 of 56 Ads on NextDoor and Facebook Item #8.1. Flyers distributed at key City locations 3  Rate Study Results & Recommendation Single Family Residential (SFR) Monthly Impact, Year One $28.86 increase for water service Primary drivers: Long-term CIP, water cost pressure, the current cash position, and rate restructuring $8.36 increase for wastewater service Primary financial drivers: Long-term CIP, current cash position, and Page 16 of 56 updated cost of service analysis Item #8.1. 4  WATER CRITICAL CAPITAL IMPROVEMENTS $15 MILLION Mandates by Water Board, Dams Page 17 of 56 and Safety, and other Critical Item #8.1. Aging Infrastructure  WASTEWATER CRITICAL CAPITAL IMPROVEMENTS $16 Million Cease and Desist Order Page 18 of 56 Regional Board, and other Item #8.1. Critical Aging Infrastructure  Key Points on Proposed Utility Rates Proposed two-tier water use rate alternative for Single Family Residential Customers- improves affordability at low-to average use and provides a conservation price signal Fixed charges are recalibrated providing relief to lower water use customers and more control over a customer’s bill Wastewater impacts vary based on harmonizing the residential class, updating non- residential strength concentrations, and ensuring all discharges pay their cost of service Tiered water use rates, along with updated wastewater rates, moderates impacts to Page 19 of 56 SFR customers with combined utility service (Greater than 70% of the customer base) Item #8.1. 7  Water Rates Schedule – Five Year Schedule Current FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Fixed Rates (All Customers) 5/8" $50.12 $62.82 $70.36 $77.40 $82.05 $86.98 1" $125.31 $151.07 $169.20 $186.12 $197.29 $209.13 1 1/2" $250.62 $298.16 $333.94 $367.34 $389.39 $412.76 2" $400.99 $474.66 $531.62 $584.79 $619.88 $657.08 3" $751.86 $886.50 $992.88 $1,092.17 $1,157.71 $1,227.18 4" $1,253.10 $1,474.84 $1,651.83 $1,817.02 $1,926.05 $2,041.62 6" $2,506.20 $2,945.69 $3,299.18 $3,629.10 $3,846.85 $4,077.67 8" $4,009.92 $4,710.71 $5,276.00 $5,803.60 $6,151.82 $6,520.93 Current FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Single-Family Residential (SFR) Tier 1 (0-12 HCF) $10.76 $13.46 $15.08 $16.59 $17.59 $18.65 Page 20 of 56 Tier 2 (>12 HCF) $10.76 $16.85 $18.88 $20.77 $22.02 $23.35 All Other Classes Item #8.1. 8 Uniform (all units) $10.76 $14.52 $16.27 $17.90 $18.98 $20.12  Current FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Residential ($/Month/Dwelling Unit) Single Family Residential (SFR) $97.87 $106.24 $132.80 $136.79 $140.90 $145.13 Multi-Family Residential (MFR) $82.21 $79.98 $99.98 $102.98 $106.07 $109.26 Mobile Home $52.85 $79.98 $99.98 $102.98 $106.07 $109.26 Wastewater Transient Rates ($/HCF) Transient General $19.98 $20.64 $25.80 $26.58 $27.38 $28.21 Rates Five Spa (Domestic Wastewater) Campground $19.98 $19.98 $20.64 $20.64 $25.80 $25.80 $26.58 $26.58 $27.38 $27.38 $28.21 $28.21 Bed & Breakfast $19.98 $20.64 $25.80 $26.58 $27.38 $28.21 Year Other Non-Residential ($/HCF) Schedule Commercial General Restaurant/Bakery $13.21 $34.85 $19.48 $26.21 $24.35 $32.77 $25.09 $33.76 $25.85 $34.78 $26.63 $35.83 Laundry $13.21 $16.57 $20.72 $21.35 $22.00 $22.66 Public Building $13.21 $7.93 $9.92 $10.22 $10.53 $10.85 Commercial Social (Schools & Churches) $13.21 $19.48 $24.35 $25.09 $25.85 $26.63 Medical Care $13.21 $19.48 $24.35 $25.09 $25.85 $26.63 Industrial & Bottling Works (per Million Gallons) $14,559.98 $27,270.49 $34,088.12 $35,110.77 $36,164.10 $37,249.03 BOD ($/lb) $2.64 $1.47 $1.84 $1.90 $1.96 $2.02 SS ($/lb) $1.99 $1.37 $1.72 $1.78 $1.84 $1.90 Page 21 of 56 Item #8.1. Spa - Geothermal Discharge ($/HCF) $6.72 $20.40 $25.50 $26.27 $27.06 $27.88 9 Minimum Charge (for All Non-Residential Users) $57.43 $79.98 $99.98 $102.98 $106.07 $109.26  Drought Rates Year One Schedule (Only during a water shortage and at the discretion of City Council) Drought Rate by Shortage Shortage Shortage Meter Size Stage 1 Stage 2 Stage 3 All Customers 5/8" $6.13 $18.17 $29.48 1" $15.31 $45.41 $73.70 1 1/2" $30.61 $90.82 $147.40 2" $48.97 $145.31 $235.84 3" $91.82 $272.46 $442.20 4" $153.03 $454.09 $737.00 6" $306.05 $908.18 $1,473.99 8" $489.68 $1,453.08 $2,358.38 Page 22 of 56 Item #8.1. 10  Adoption & Implementation Schedule – Upcoming Dates October 3, 2023 Final Rate Proposal & Draft Report City Council Meeting Authorization to Notice Customers October-November Customer Noticing Period Procedural Period 45 Day Minimum Protest Period December 5, 2023 Public Hearing on Proposed Rates City Council Meeting Formal Rate Adoption, Absent a Majority Protest nd December 19, 2023 2 Reading of Rate Ordinance City Council Meeting 30 day wait period commences Page 23 of 56 March 1, 2024 New Rates Effective Item #8.1. Implementation 11  Next Steps: Notice of Public Hearing City Council direction to notice customers is required to schedule the Public Hearing Page 24 of 56 Item #8.1. 12  Suggested Motion • Move to accept the Study recommendation and rate proposals • Direct the City Manager to proceed with Proposition 218 notification and rate implementation processes • Set a Public Hearing date of December 5, 2023 Page 25 of 56 Item #8.1. 13  Thank you Contact: Kevin Kostiuk 213-262-9309 / kkostiuk@raftelis.com Page 26 of 56 Item #8.1. 14  Item #8.1. ATTACHMENT 2 City of Calistoga Water and Wastewater Rate Study Executive Summary / September 29, 2023 Page 27 of 56  Item #8.1. Page 28 of 56  Item #8.1. September 29, 2023 Mr. Derek Rayner Public Works Director City of Calistoga 1232 Washington St Calistoga, CA 94515 Subject: Water and Wastewater Rate Study Dear Mr. Rayner, Raftelis is pleased to provide this Executive Summary of the Water and Wastewater Rate Study to the City of Calistoga. The overall purpose of the study was to develop five years of proposed rates for the City’s Water and Wastewater Enterprises for implementation in Fiscal Year (FY) 2023-24 through FY 2027-28. The proposed utility rates were developed following industry standard rate methodologies and in conjunction with the City’s legal counsel to ensure that rates are fair, cost-justified, and aligned with the requirements of California’s Proposition 218. The major objectives of the study were to: » Develop a ten-year financial plan for both the City’s Water and Wastewater Enterprises to ensure financial sufficiency in recovering operating costs, funding long-term capital needs, and maintaining prudent reserves. » Conduct water and wastewater cost of service analyses to ensure a nexus between proposed rates and the cost to provide services to customers. » Evaluate rate alternatives and proposed rate structure modifications to better align with community values and the City’s policy objectives » Develop five years of water and wastewater rates in alignmnet with Proposition 218 requirements. » Conduct public outreach to engage, inform, and solicit input from City ratepayers throughout the rate study process This Executive Summary outlines the study background, results, and recommendations related to the development of utility financial plans, cost of service analyses, and proposed rates. It has been a pleasure working with you and we thank you and other City staff for the support provided to Raftelis during this study. Sincerely, Kevin Kostiuk Sarah Wingfield Senior Manager Associate Consultant 445 S Figueroa St, Suite 1925 Los Angeles CA 90071 www.raftelis.com Page 29 of 56  Item #8.1. Table of Contents 1. EXECUTIVE SUMMARY................................................................................................................11 1.1. Study Overview...............................................................................................................................11 1.2. Rate Study Process ........................................................................................................................11 1.3. Proposed Water Financial Plan ......................................................................................................12 1.4. Proposed Water Rates ...................................................................................................................15 1.5. Water Bill Impacts...........................................................................................................................16 1.6. Proposed Water Shortage Surcharges...........................................................................................17 1.7. Proposed Wastewater Financial Plan.............................................................................................17 1.8. Proposed Wastewater Rates ..........................................................................................................21 1.9. Wastewater Bill Impacts .................................................................................................................22 WATER AND WASTEWATER RATE STUDY Page 30 of 56  Item #8.1. List of Tables Table 1-1: Proposed Water Revenue Adjustments ....................................................................................................10 Table 1-2: Proposed Changes to Residential Tier Allotments ...................................................................................13 Table 1-3: Proposed Five-Year Water Rate Schedule ...............................................................................................14 Table 1-4: Proposed Water Shortage Contingency Rates, FY 2023-24 ....................................................................15 Table 1-5: Proposed Wastewater Revenue Adjustments ..........................................................................................16 Table 1-7: Proposed Five-Year Wastewater Rate Schedule .....................................................................................20 CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 31 of 56  Item #8.1. List of Figures Figure 1-1: Water Enterprise Capital Improvement Plan............................................................................................11 Figure 1-2: Proposed vs. Status Quo Water Financial Plan.......................................................................................11 Figure 1-3: Proposed Water Financial Plan – Projected Ending Balances ................................................................12 Figure 1-4: Proposed Water Financial Plan - Debt Coverage ....................................................................................13 Figure 1-5: Single Family Residential Monthly Water Bill Impacts (FY 2021-22).......................................................15 Figure 1-6: Wastewater Enterprise Capital Improvement Plan ..................................................................................16 Figure 1-7: Proposed vs. Status Quo Wastewater Financial Plan .............................................................................17 Figure 1-8: Proposed Wastewater Financial Plan – Projected Ending Balances.......................................................18 Figure 1-9: Proposed Wastewater Financial Plan - Debt Coverage ..........................................................................19 Figure 1-10: Single Family Residential Monthly Wastewater Bill Impacts (FY 2023-24) ...........................................21 WATER AND WASTEWATER RATE STUDY Page 32 of 56  Item #8.1. List of Abbreviations AF: Acre-feet AFY: Acre-feet per year AWWA: American Water Works Association BOD: Biological Oxygen Demand CIP: Capital Improvement Plan City: City of Calistoga COS: Cost of Service CPI: Consumer Price Index FY: Fiscal year GPCD: Gallons per capita per day GPM: Gallons per minute HCF: One hundred cubic feet K: Thousand Lbs: Pounds M: Million Manual M1: American Water Works Association’s Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices - M1 Seventh Edition Max Day: Maximum day water demand Max Hour: Maximum hour water demand MG: Million gallons Mg/L: Milligrams per Liter MGD: Million gallons per day NPDES Permit: National Pollutant Discharge Elimination System Permit O&M: Operations and maintenance PPM: Parts per million R&R: Repair and replacement RCLD: Replacement cost less depreciation SS: Suspended Solids Study Period: the rate-setting period of this study which extends through fiscal year 2027-28 WEF: Water Environment Federation WWTP: Wastewater treatment plant CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 33 of 56  Item #8.1. This page intentionally left blank to facilitate two-sided printing. WATER AND WASTEWATER RATE STUDY Page 34 of 56  Item #8.1. 1.Executive Summary 1.1.Study Overview Public water and wastewater utilities in California typically perform a cost of service analysis every five to ten years to ensure that customers are appropriately charged for service commensurate with the cost to provide service. The City of Calistoga last conducted a water and wastewater cost of service study in 2018, which established proposed rates over a five-year period through Fiscal Year (FY) 2021-22. No rate increases have been implemented since the last year of adopted rates went into effect in July 2021. The City of Calistoga (City) engaged Raftelis to conduct a water and wastewater cost of service study to establish a proposed five-year schedule of water and wastewater rates through FY 2027-28. Note that proposed rates cannot be implemented until formally adopted by City Council after a public hearing, and absent a majority protest by parcels served by the City. Proposition 218 requires that City customers be mailed a public hearing notice detailing proposed rate changes no fewer than 45 days before the public hearing. The major objectives of this study are to: » Develop a ten-year financial plan that sufficiently funds the City’s Water and Wastewater Enterprises’ operations and maintenance (O&M) expenses, debt service payments, and capital expenditures while adequately funding reserves and achieving debt coverage requirements. » Conduct cost of service analyses that establish a clear nexus between the cost to serve water and wastewater customers and the rates charged to customers, per Proposition 218 and industry standards. » Evaluation of alternatives to the City’s existing water and wastewater rate structures that may better align with community values and the City’s policy objectives, while fully recovering the cost of providing service and ensuring rates are cost-justified » Develop a five-year schedule of water and wastewater rates that are fair, cost-justified, and aligned with the requirements of California’s Proposition 218. » Conduct public outreach to engage, inform, and solicit input from City ratepayers throughout the rate study process » Develop a five-year schedule of drought rates that may be implemented in future declared water shortages or other water emergencies. 1.2.Rate Study Process This study was conducted using industry-standard principles outlined by the American Water Works Association’s (AWWA) Manual M1 and the Water Environment Federation’s (WEF) Financing and Charges for Wastewater Systems. The overall process outlined below applies to the development of both water and wastewater rates. 1. Financial Plan: Develop cash flow projections for the Water and Wastewater Enterprise to determine the amount of revenue required from water and wastewater rates. 2. Cost of Service Analysis: Allocate costs to system components and then to various customer classes based on the costs incurred and user characteristics. 3. Rate Design: Develop rates that generate sufficient revenues based on the results of the financial plan and cost of service analyses and communicate the policy preferences of the agency, maintaining that rates are cost-justified. CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 35 of 56  Item #8.1. 4. Administrative Record Preparation: Develop an administrative record (Study report) to document the results of the rate study. 5. Rate Adoption: Proposed rates may be adopted by City Council only after holding a public hearing in accordance with the procedural requirements of Proposition 218. 1.3.Proposed Water Financial Plan Raftelis conducted a status quo cash flow analysis to evaluate whether existing water rates adequately fund the Water Enterprise’s various expenses over the five-year study period. Annual projections of revenues, O&M expenses, debt service payments, and capital expenditures through FY 2032-33 were developed with City staff. Raftelis projects that with no rate increases over the five-year study period, the Water Enterprise’s reserves will immediately become negative and fail to meet minimum debt coverage in all years beginning in FY 2023-24. This demonstrates a clear need for revenue adjustments (i.e. gross water rate revenue increases relative to existing rate revenues). Raftelis worked with City staff to develop the following proposed revenue adjustments over the five-year study period (see Table 1-1). Table 1-1: Proposed Water Revenue Adjustments Fiscal Year FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Effective Date March 1, 2024 January 1, 2025 January 1, 2026 January 1, 2027 January 1, 2028 Revenue Adjustment 50.0% 12.0% 10.0% 6.0% 6.0% Key factors influencing the need for proposed revenue adjustments include: » Cost inflation: Operating costs continue to increase year over year due to general inflationary pressures with higher increases projected for power, labor and water supply. Projected future purchased water (State Water Project (SWP) treatment and conveyance through the City of Napa is projected to increases at a rate of nearly 10 percent per year for the next 10 years. » Reduction in baseline water demand: Following two multi-year droughts and associated mandatory conservation and messaging, the City has continued to experience lower overall water consumption relative to historical demands While conservation is necessary in ensuring reliable long-term water supplies, utility costs must be recovered and reduced water demands generally mean increased rate pressure » Planned capital expenditures: Adjusted for inflation, the Water Enterprise has over $16 M in critical CIP in the next five years with another $26 M estimated in years 6-10 of the plan. These include mandated by the Water Resources Control Board (SWRCB or State Board), the Division of Dams and Safety, and other critical aging infrastructure. Rate revenues need to be sufficient to execute these projects with cash, future debt proceeds, or a combination of the two » Cash Reserves: The Water Enterprise beginning cash balance is significantly under the reserve policy targets with substantial CIP requirements in the current fiscal year and the coming fiscal years. Without additional reserves the Enterprise will not have sufficient funds to match awarded grants for CIP, maintain operating cash flow, or be extended future credit. The existing cash position presents a great deal of financial risk in both the near and long-term. Figure 1-1 shows the proposed CIP financing plan over the study period. The City intends to fund future CIP costs through a combination of cash, grants, and future debt proceeds. 10 CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 36 of 56  Item #8.1. Figure 1-1: Water Enterprise Capital Improvement Plan Figure 1-2 shows the proposed versus status quo Water Enterprise operating financial plan. Revenues under the proposed financial plan and status quo financial plan are represented by the dark blue and gray lines, respectively. Revenue requirements including O&M expenses, debt service, and reserve funding for CIP are represented by the various stacked bars. Revenue adjustments (i.e., gross rate revenue increases) are required to generate additional revenue to fully recover O&M expenses, capital repair and replacement (R&R) project costs, debt service payments, and reserve funding over the study period. Figure 1-2: Proposed vs. Status Quo Water Financial Plan CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 37 of 56  Item #8.1. Figure 1-3 shows the Water Enterprise’s projected fiscal year-end balance under the proposed financial plan. The dark blue bars indicate the ending balance on June 30 of each year. The minimum reserve target (120 days of operating expenses plus $1.5 M emergency reserves) is represented by the gray line. The goal reserve target (120 days of O&M plus $3.4 M emergency reserves) is shown by the blue line. The Water Enterprise is projected to continue to draw down its reserves through FY 2027-28 to fund substantial repair and replacement (R&R) capital projects. The proposed rate increases shown in Table 1-1 will allow the City to accumulate reserve funding beginning in FY 2024-25, such that the City’s reserve funding will meet its minimum reserve requirement by FY 2027-28 and the goal reserve bythe end of the 10-year planning period. Figure 1-3: Proposed Water Financial Plan – Projected Ending Balances Figure 1-4 shows projected debt coverage (blue line) relative to the debt coverage requirement (gray line) over the study period. Debt coverage is expected to rise sharply in FY 2023-24 with the proposed rate increases shown above in Table 1-1. The proposed rate increases and CIP funding plan will allow the City to meet its minimum debt coverage requirement throughout the study period. Failure to meet minimum debt service coverage in future years without remedial action such as implementing rate increases, could result in a downgrade of credit rating, higher costs in future debt issuance, or even denial of credit. 12 CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 38 of 56  Item #8.1. Figure 1-4: Proposed Water Financial Plan - Debt Coverage 1.4.Proposed Water Rates The City of Calistoga’s existing water rate structure consists of fixed Water Service Charges (based on meter size) and variable Water Volume Rates (per hundred cubic feet [HCF] of water delivered). Raftelis worked closely with City staff and the City’s legal counsel to evaluate potential changes to the existing water rate structure. The following changes are proposed: » Single Family Residential (SFR) Tiers: The Study recommends that the City introduce a two-tiered rate structure for SFR customers. Tier 1 will be defined as the first 12 units of water (HCF) in a two-month period. Tier 2 will include all use greater than Tier 1. SFR is a fairly homogenous customer class which has similar indoor needs for health and sanitation, similar outdoor irrigation needs, and similar seasonality in these demand patterns. It is therefore appropriate to tier this class of like customers. The two-tier structure will provide a lower cost water in the first tier and a higher cost in the second tier. This will promote affordability of service for lower to average use SFR customers while including a conservation price signal between the two tiers. The proposed monthly allotments for residential customers are shown below in Table 1-2. Note that non-residential customers will maintain a uniform rate structure. » All Other Classes: The Study recommends that all other customer classes maintain the existing uniform rate structure. These include Multi-Family Residential (MFR), Mobile Home, Commercial, Industrial, and Irrigation classes. The City’s MFR and Mobile Home units are predominantly master-metered properties with one large meter serving dozens or even hundreds of dwelling units. Non-residential classes have highly varying demand patterns based on the type of business or seasonal transient effects. For this reason a uniform rate is proposed. CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 39 of 56  Item #8.1. Table 1-2: Proposed Changes to Residential Tier Allotments Current Bi-Monthly Proposed Monthly Description Allotment Allotment Single Family Residential Tier 1 N/A Uniform 0-12 HCF Tier 2 N/A Uniform >12 HCF All Other Classes Uniform N/A N/A Table 1-3 the shows first five years of proposed Water Service Charges, Fire Line Service Charges, and Water Volume Rates (through FY 2028-29). All fixed charges and tier allotments are shown on a monthly basis, but in practice only non-residential customers are billed on a monthly basis. Residential customers, whose meters are not yet automated and must be read manually every other month, are simply billed the same rate multiplied by two on a bi-monthly basis. All volumetric rates are shown in terms of dollars per hcf ($/hcf). Table 1-3: Proposed Five-Year Water Rate Schedule (Monthly Fixed Charges & Bi-Monthly Tiers) Description Current FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Fixed Rates 5/8" $50.12 $62.82 $70.36 $77.40 $82.05 $86.98 1" $125.31 $151.07 $169.20 $186.12 $197.29 $209.13 1 1/2" $250.62 $298.16 $333.94 $367.34 $389.39 $412.76 2" $400.99 $474.66 $531.62 $584.79 $619.88 $657.08 3" $751.86 $886.50 $992.88 $1,092.17 $1,157.71 $1,227.18 4" $1,253.10 $1,474.84 $1,651.83 $1,817.02 $1,926.05 $2,041.62 6" $2,506.20 $2,945.69 $3,299.18 $3,629.10 $3,846.85 $4,077.67 8" $4,009.92 $4,710.71 $5,276.00 $5,803.60 $6,151.82 $6,520.93 SFR Tier 1 $10.76 $13.46 $15.08 $16.59 $17.59 $18.65 Tier 2 $10.76 $16.85 $18.88 $20.77 $22.02 $23.35 All Other Classes Uniform $10.76 $14.52 $16.27 $17.90 $18.98 $20.12 1.5. Water Bill Impacts Figure 1-5 shows sample monthly water bills for single family residential customers at varying levels of water use under both current and proposed FY 2023-24 rates. Note that actual bill impacts will vary based on individual water use; however, the values shown below are based on low, high, and typical volumes for single family residential customers and reflect actual use patterns for SFR customers at the City of Calistoga. 14 CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 40 of 56  Item #8.1. Figure 1-5: Single Family Residential Monthly Water Bill Impacts (FY 2021-22) 1.6.Proposed Water Shortage Surcharges Additional to the water and wastewater rates developed in this study, Raftelis worked with City staff and legal counsel to develop a schedule of drought surcharge rates to be implemented in times of shortage. The surcharges are an addition to existing fixed water charges when in a declared shortage and when implemented by City Council. These surcharges are a temporary tool to recover revenue shortfalls resulting from reduced water sales during times of conservation or curtailment. Raftelis estimated the net revenue loss at each shortage stage incorporating projected reductions in water sales revenues, avoided costs in water production, and additional costs in shortage like conservation programs and messaging. The net loss is then recovered as a fixed surcharge. The resulting drought surcharge rates for FY 2024 are shown below in Table 1-4. As a point of reference, most of the City’s customers are SFR and almost all SFR customers have a 5/8” metered connection. CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 41 of 56  Item #8.1. Table 1-4: Proposed Water Shortage Surcharges, FY 2023-24 Meter Size Shortage Stage by FY 5/8" 1” 1-1/2” 2” 3” 4” 6” 8” FY 2024 Stage 1 $6.13 $15.31 $30.61 $48.97 $91.82 $153.03 $306.05 $489.68 Stage 2 $18.17 $45.41 $90.82 $145.31 $272.46 $454.09 $908.18 $1,453.08 Stage 3 $29.48 $73.70 $147.40 $235.84 $442.20 $737.00 $1,473.99 $2,358.38 FY 2025 Stage 1 $6.87 $17.15 $34.28 $54.85 $102.84 $171.39 $342.78 $548.44 Stage 2 $20.35 $50.86 $101.72 $162.75 $305.16 $508.58 $1,017.16 $1,627.45 Stage 3 $33.02 $82.54 $165.09 $264.14 $495.26 $825.44 $1,650.87 $2,641.39 FY 2026 Stage 1 $7.55 $18.86 $37.71 $60.33 $113.12 $188.53 $377.05 $603.29 Stage 2 $22.39 $55.95 $111.89 $179.02 $335.67 $559.44 $1,118.88 $1,790.19 Stage 3 $36.32 $90.80 $181.60 $290.55 $544.79 $907.88 $1,815.96 $2,905.52 FY 2027 Stage 1 $8.01 $19.99 $39.97 $63.95 $119.91 $199.84 $399.68 $639.48 Stage 2 $23.73 $59.30 $118.60 $189.76 $355.81 $593.01 $1,186.01 $1,897.61 Stage 3 $38.50 $96.25 $192.49 $307.99 $577.48 $962.46 $1,924.91 $3,079.86 FY 2028 Stage 1 $8.49 $21.19 $42.37 $67.79 $127.10 $211.84 $423.66 $677.85 Stage 2 $25.15 $62.86 $125.72 $201.15 $377.16 $628.59 $1,257.17 $2,011.46 Stage 3 $40.81 $102.02 $204.04 $326.47 $612.13 $1,020.21 $2,040.41 $3,264.65 1.7.Proposed Wastewater Financial Plan Raftelis conducted a status quo cash flow analysis to evaluate whether existing wastewater rates adequately fund the Wastewater Enterprise’s various expenses over the five-year study period. Annual projections of revenues, O&M expenses, debt service payments, and capital expenditures through FY 2032-33 were developed with City staff. Raftelis projects that with no rate increases over the five-year study period, the Wastewater Enterprise’s reserves will immediately become negative and fail to meet minimum debt coverage in all years beginning in FY 2023-24. This demonstrates a clear need for revenue adjustments (i.e. gross wastewater rate revenue increases relative to existing rate revenues). Raftelis worked with City staff to develop the following proposed revenue adjustments over the five-year study period (see Table 1-5). 16 CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 42 of 56  Item #8.1. Table 1-5: Proposed Wastewater Revenue Adjustments Fiscal Year FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Effective Date March 1, 2024 January 1, 2025 January 1, 2026 January 1, 2027 January 1, 2028 Revenue Adjustment 35.0% 25.0% 3.0% 3.0% 3.0% Key factors influencing the need for proposed Wastewater Enterprise revenue adjustments include: » Cost inflation: Operating costs continue to increase year over year due to general inflationary pressures with higher increases projected for power, labor, and chemicals among others. » Planned capital expenditures: Adjusted for inflation, the Wastewater Enterprise has over $16 M in critical CIP in the next five years with another $15 M estimated in years 6-10 of the plan. These include legally mandated projects related to the wastewater treatment and disposal facilities as well as other critical aging infrastructure. Rate revenues need to be sufficient to execute these projects with cash, future debt proceeds, or a combination of the two. » Cash Reserves: The Wastewater Enterprise beginning cash balance is significantly under the reserve policy targets with substantial CIP requirements in the current fiscal year and the coming fiscal years. Without additional reserves the Enterprise will not have sufficient funds to match awarded grants for CIP, maintain operating cash flow, or the opportunity to be extended future credit. The existing cash position presents a great deal of financial risk in both the near and long-term. Figure 1-6 shows the proposed CIP financing plan over the study period. The City plans to finance its wastewater CIP projects through a combination of cash and grant funding. Figure 1-6: Wastewater Enterprise Capital Improvement Plan CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 43 of 56  Item #8.1. Figure 1-7 shows the proposed versus status quo Wastewater Enterprise operating financial plan. Revenues under the proposed financial plan and status quo financial plan are represented by the gray and dark blue lines, respectively. Revenue adjustments (i.e., gross rate revenue increases) are required to generate additional revenue to fully recover O&M expenses, CIP project costs, debt service payments, and reserve funding over the study period. Figure 1-7: Proposed vs. Status Quo Wastewater Financial Plan Figure 1-8 shows the Wastewater Enterprise’s projected fiscal year ending balances under the proposed financial plan. The reserve balances are represented by the dark blue bars. The minimum reserve policy is represented by the gray line (120 days of operating expenses plus $1.5 M emergency); the goal reserve target is represented by the blue line (120 days of operating expenses plus $4.1 M emergency). As shown in Figure 1-8, the City will gradually build reserves during the first five years of the study, reaching the minimum reserve target in FY 2026-27 and the goal reserve target in FY 2030-31. 18 CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 44 of 56  Item #8.1. Figure 1-8: Proposed Wastewater Financial Plan – Projected Ending Balances Figure 1-9 shows projected debt coverage (blue line) relative to the debt coverage requirement (gray line) over the study period. No new debt service is planned. Debt coverage remains above the requirement throughout the study period. CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 45 of 56  Item #8.1. Figure 1-9: Proposed Wastewater Financial Plan - Debt Coverage 1.8.Proposed Wastewater Rates The City of Calistoga’s current wastewater rate structure consists of Fixed Service Charges for Residential users and Flow Charges Non-Residential customer classes. While Non-Residential charges are 100 percent flow-based, these users are subject to a minimum monthly wastewater charge. Industrial and bottling works customers are charged at rate per million gallons of metered flow as well as per pound of sampled strength. The City will maintain its current structure for wastewater billing. While the structure will remain the same, the proposed rates reflect the updated cost of service analysis and the revenue adjustments. Table 1-6 shows proposed wastewater rates through FY 2027-28. All Fixed Charges shown are monthly. 20 CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 46 of 56  Item #8.1. Table 1-6: Proposed Five-Year Wastewater Rate Schedule Description Current FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Residential ($/Month/Dwelling Unit) Single Family Residential (SFR) $97.87 $106.24 $132.80 $136.79 $140.90 $145.13 Multi-Family Residential (MFR) $82.21 $79.98 $99.98 $102.98 $106.07 $109.26 Mobile Home $52.85 $79.98 $99.98 $102.98 $106.07 $109.26 Transient Rates ($/HCF) Transient General $19.98 $20.64 $25.80 $26.58 $27.38 $28.21 Spa (Domestic Wastewater) $19.98 $20.64 $25.80 $26.58 $27.38 $28.21 Campground $19.98 $20.64 $25.80 $26.58 $27.38 $28.21 Bed & Breakfast $19.98 $20.64 $25.80 $26.58 $27.38 $28.21 Other Non-Residential ($/HCF) Commercial General $13.21 $19.48 $24.35 $25.09 $25.85 $26.63 Restaurant/Bakery $34.85 $26.21 $32.77 $33.76 $34.78 $35.83 Laundry $13.21 $16.57 $20.72 $21.35 $22.00 $22.66 Public Building $13.21 $7.93 $9.92 $10.22 $10.53 $10.85 Commercial Social $13.21 $19.48 $24.35 $25.09 $25.85 $26.63 Medical Care $13.21 $19.48 $24.35 $25.09 $25.85 $26.63 Industrial & Bottling Works (per million gallons) $14,559.98 $27,270.49 $34,088.12 $35,110.77 $36,164.10 $37,249.03 BOD ($/lb) $2.64 $1.47 $1.84 $1.90 $1.96 $2.02 SS ($/lb) $1.99 $1.37 $1.72 $1.78 $1.84 $1.90 Spa - Geothermal Discharge ($/HCF) $6.72 $20.40 $25.50 $26.27 $27.06 $27.88 Minimum Charge (for All Non-Residential Users) $57.43 $79.98 $99.98 $102.98 $106.07 $109.26 1.9. Wastewater Bill Impacts Figure 1-10 shows sample monthly wastewater bills for single family residential customers at varying levels of water use under both current rates and proposed FY 2023-24 rates. Since Residential wastewater charges are a fixed service charge, charges do not vary by level of metered water use. CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 47 of 56  Item #8.1. Figure 1-10: Single Family Residential Monthly Wastewater Bill Impacts (FY 2023-24) 22 CITY OF CALISTOGA – WATER AND WASTEWATER RATE STUDY Page 48 of 56  ATTACHMENT Item3#8.1. DRAFT 2023 City of Calistoga Water and Sewer Utility Rate Update Proposition 218 2023 City of Calistoga Water and Sewer Utility Rate Update DRAFT Proposition 218 (English) NOTICE OF PUBLIC HEARING To Consider Proposed Water and Wastewater Rate Increases 6 p.m. Tuesday, December 5, 2023 City of Calistoga City Council Chambers 1307 Washington Street, Calistoga, CA 94515 PLEASE TAKE NOTICE THAT the Calistoga City Council will conduct a Public Hearing to consider proposed rates for water and wastewater services. The costs incurred by the City to operate, maintain, repair, and replace infrastructure such as pipes, pumps, treatment systems, and other essential facilities continue to increase. The proposed rates will ensure that the water and wastewater utilities collect sufficient revenue to cover the operating and capital expenses needed to maintain reliable service and run the water and wastewater utilities efficiently and consistently with industry standards. Why Am I Receiving This Notice? The City mailed this Notice to all property owners of record and water and wastewater utility customers, in accordance with Article XIII-D, Section 6 of the California Constitution (“Proposition 218”). This serves as notice that the Calistoga City Council will conduct a Public Hearing at the time, date, and location identified above in this Notice to consider recommended adjustments to the City’s water and wastewater rates. All those interested are invited, but not required, to appear at the time and place of the Public Hearing to give oral or written testimony. The City Council will hear and consider public input regarding the proposed rate adjustments at the Public Hearing on December 5, 2023, and determine whether to adopt the proposed rates. The City Council cannot increase rates beyond the amounts listed in this Notice. If adopted, proposed water and wastewater rate adjustments would become effective on March 1, 2024, with annual rate adjustments effective on January 1 of each year from 2025 through 2028. How Proposed Water and Wastewater Rates Were Calculated The City of Calistoga is proposing to increase the rates for its water and wastewater service charges based on its most recent rate models and cost of service (COS) studies conducted by an independent rates consultant. The City hired Raftelis Financial Consultants, Inc., a consulting firm with expertise in water and wastewater rate studies across the country to evaluate the City's costs of service for water and wastewater service and to proportionally allocate those costs to customer classes (residential, commercial, etc.). The rates studies consist of a series of steps involving data evaluation, technical analyses, deriving customer rates, and understanding the rate adjustments’ impacts on customers. The financial analyses and rate models are documented in the Cost of Service Study Report to serve as part of the City’s administrative record to justify proposed rates. The proposed increases to the current rates over the next five years are listed in the tables contained in this Notice. 4864-8254-5027 v3 Page 49 of 56  Item #8.1. DRAFT 2023 City of Calistoga Water and Sewer Utility Rate Update Proposition 218 The Cost of Service Study Report is available on the website at “Water & Wastewater Rate Study FY 22-23.” Scan this code to be taken directly to the rates study webpage. About the Water System The City is responsible for the operation and maintenance of water distribution facilities for residential, commercial, public, and other properties in the City’s water service area. The City purchases raw water from the State Water Project (SWP) that is treated and delivered by the City of Napa for approximately 70 percent of the water supply. The other 30 percent comes from Kimball Dam/Reservoir, the City- owned local surface water supply. Nearly half of the City’s water system is more than 50 years old and in need of replacement or significant repairs. The water system includes: • Kimball Reservoir, Dam, and Treatment Plant • Drinking Water Storage tanks with a capacity of 2.5 million gallons • Over 40 miles of water distribution and transmission mains • 1,566 service connections and meters • 184 fire hydrants and 752 valves About the Wastewater System The City is responsible for the operation and maintenance of the underground wastewater collection system (or piping), four lift stations that pump sewerage, and operating the Duanweal wastewater treatment plant (WWTP). The wastewater collection system includes all residential and commercial customers in the city limits. Sewage drains by gravity to one of four pump stations or directly to the WWTP. The wastewater collection system includes: • 18 miles of wastewater collection pipelines • 332 manholes • 4 lift stations • 5.5 miles of recycled water mains • 2 recycle water booster pump stations • 1,337 customers and lateral connections • 50 million gallons of storage ponds Why Are Water Rate Increases Needed? Water services are funded by the rates customers pay. Water systems must keep up with rising costs and be able to implement critical capital projects that are mandated or necessary for the health and safety of customers. The following factors have increased the City’s costs of service and are the reason that water rate increases are needed: • The City of Napa is increasing treatment and delivery costs by 10 percent per year over the next five years. • State Water Project costs will increase by five percent over the next five years. • Operations costs, such as energy, chemicals, equipment, parts, meeting more stringent water treatment regulations, and labor, have increased due to inflationary pressures. In fact, without increases, rates would not even be sufficient to cover operating expenses. • Rate revenues decreased because of the recent three-year drought (2020-22). • Actual revenues collected have been less than those forecasted in the last rate study because two large resorts that were anticipated to connect to the City’s system in 2019, that did not happen, and only one of them has become a customer at the end of 2021. • The Water Utility has a small customer base to support $4.8 million O&M annually, plus $15 million in capital over five years. 4864-8254-5027 v3 Page 50 of 56  Item #8.1. DRAFT 2023 City of Calistoga Water and Sewer Utility Rate Update Proposition 218 • Significant capital project expenditures are required, including: o The Division of Safety of Dams mandated that the City replace an inoperable drain valve and aging tower ($2.3 million). o The state Water Board mandated that the City remove the Pope Street Pump Station from the 100-year floodway ($6.7 million). o Advanced Carbon filtering to comply with disinfection byproducts rules and improve taste and odor. o Deferred maintenance. • The Water Utility must repay the existing General Fund loan of $1 million. However, the City is going to forgive a $1.6 million loan made in FY 2017-18. • The Water Utility’s reserves were depleted entering FY 2023-24, so rates must replenish reserves and meet the new reserve goals of $1.5 million, four months of Operations and Maintenance costs, and one year’s average CIP expenditures, set by the City Council, to ensure the Utility’s future financial security. • Future Debt payments to cover CIP over next ten years. Why Are Wastewater Rate Increases Needed? Wastewater services are funded by the rates customers pay. Wastewater systems must keep up with rising costs and be able to implement critical capital projects that are cease-and-desist order (CDO) required improvements or necessary to replace critical aging infrastructure. The City’s wastewater rates are increasing due to the following reasons: • Rate revenues decreased due to the last three-year drought (2020-22). • Actual revenues collected have been less than those forecasted in the last rate study because two large resorts that were anticipated to connect to the City’s system in 2019, that did not happen, and only one of them has become a customer at the end of 2021. • The Wastewater Utility has a small customer base to support $3.5 million O&M annually plus $16 million in capital over 5 years. • Operations costs, such as energy, chemicals, equipment, parts, meeting more stringent wastewater treatment regulations, and labor, have increased. • The Wastewater Utility’s reserves were depleted entering FY 2023-24, so rates must replenish reserves and meet the new reserve goals of $1.5 million, four months of Operations and Maintenance costs, and one year’s average CIP expenditures, set by the City Council, to ensure the Utility’s future financial security. Significant capital improvement projects are required, including: o CDO Riverside Pond and Headworks project ($6.2 million), required by the state water quality control board. o Critical Liner repair at the wastewater treatment plant ($2.5 million). o Critical aging pipe repair/replacement ($8.5 million over the next 10 years). o Deferred maintenance. • The Wastewater Utility must repay an existing General Fund loan of nearly $1.6 million. PROPOSED RATE RECOMMENDATIONS WATER: Proposed Rates Customer rates and charges will differ depending on the type of account (residential, commercial, industrial), meter size, and water use. All customers pay a monthly service charge and a consumption (volumetric) rate. The proposed water rates include a tiered structure for Single Family Residential (SFR) customers. This structure would provide the first 12 billing units of water at a lower Tier 1 rate, 4864-8254-5027 v3 Page 51 of 56  Item #8.1. DRAFT 2023 City of Calistoga Water and Sewer Utility Rate Update Proposition 218 and greater than 12 billing units would bill at a higher Tier 2 rate. This structure helps to maintain affordable service for the majority of City water customers who are SFR and use 12 billing units or less, on average. The secondary benefit is to provide a conservation signal for higher water users, aligning the costs for more expensive supplies with higher use. The Tiers represent the costs of serving SFR customers at the different consumption levels. Proposed Monthly Water Fixed Service Charges Table 1 shows the proposed monthly water service charge by meter size over the next five years. Most City water customers have a 5/8” metered connection. Table 1: Proposed Monthly Water Fixed Service Charges (Fixed Rates All Customers) Current FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Meter Size 5/8" $50.12 $62.82 $70.36 $77.40 $82.05 $86.98 1" $125.31 $151.07 $169.20 $186.12 $197.29 $209.13 1 1/2" $250.62 $298.16 $333.94 $367.34 $389.39 $412.76 2" $400.99 $474.66 $531.62 $584.79 $619.88 $657.08 3" $751.86 $886.50 $992.88 $1,092.17 $1,157.71 $1,227.18 4" $1,253.10 $1,474.84 $1,651.83 $1,817.02 $1,926.05 $2,041.62 6" $2,506.20 $2,945.69 $3,299.18 $3,629.10 $3,846.85 $4,077.67 8" $4,009.92 $4,710.71 $5,276.00 $5,803.60 $6,151.82 $6,520.93 Proposed Monthly Water Volumetric Rates Table 2 shows current and proposed water volumetric water rates for SFR and All Other Classes, including Multi-Family Residential (MFR), Commercial, Industrial, and Irrigation customers. Note that SFR tier breakpoints are bi-monthly (two months of use) as this class is billed for service on a two- month cycle. Table 2: Proposed Monthly Water Volumetric Rates Current FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Single-Family Residential (SFR) Tier 1 (0-12 HCF) $10.76 $13.46 $15.08 $16.59 $17.59 $18.65 Tier 2 (>12 HCF) $10.76 $16.85 $18.88 $20.77 $22.02 $23.35 All Other Classes Uniform (all units) $10.76 $14.52 $16.27 $17.90 $18.98 $20.12 Note: 1 HCF = 100 cubic feet and 1 unit of water. HCF is the unit charge for water use/consumption. 1 HCF is also equal to 748 gallons of water. WASTEWATER: Proposed Rates 4864-8254-5027 v3 Page 52 of 56  Item #8.1. DRAFT 2023 City of Calistoga Water and Sewer Utility Rate Update Proposition 218 Wastewater costs have been updated and reallocated among customer classes to ensure equitability using estimated sewer flow and typical loading data. Customer rates and charges will differ depending on the type of account (residential, commercial, industrial, etc.). Table 3 shows the proposed monthly service charges for Residential classifications and flow charges for all other classes, for the next five years. Note: residential customers receive a two-month bill six times per year. All other customers receive a monthly bill 12 times per year. Table 3: Proposed Wastewater Rates Current FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Residential ($/Month/Dwelling Unit) Single Family Residential (SFR) $97.87 $106.24 $132.80 $136.79 $140.90 $145.13 Multi-Family Residential (MFR) $82.21 $79.98 $99.98 $102.98 $106.07 $109.26 Mobile Home $52.85 $79.98 $99.98 $102.98 $106.07 $109.26 Transient Rates ($/HCF) Transient General $19.98 $20.64 $25.80 $26.58 $27.38 $28.21 Spa (Domestic Wastewater) $19.98 $20.64 $25.80 $26.58 $27.38 $28.21 Campground $19.98 $20.64 $25.80 $26.58 $27.38 $28.21 Bed & Breakfast $19.98 $20.64 $25.80 $26.58 $27.38 $28.21 Other Non- Residential ($/HCF) Commercial General $13.21 $19.48 $24.35 $25.09 $25.85 $26.63 Restaurant/Bakery $34.85 $26.21 $32.77 $33.76 $34.78 $35.83 Laundry $13.21 $16.57 $20.72 $21.35 $22.00 $22.66 Public Building $13.21 $7.93 $9.92 $10.22 $10.53 $10.85 Commercial Social (Schools & Churches) $13.21 $19.48 $24.35 $25.09 $25.85 $26.63 Medical Care $13.21 $19.48 $24.35 $25.09 $25.85 $26.63 Industrial & Bottling Works (per Million Gallons) $14,559.98 $27,270.49 $34,088.12 $35,110.77 $36,164.10 $37,249.03 1 BOD ($/lb) $2.64 $1.47 $1.84 $1.90 $1.96 $2.02 2 SS ($/lb) $1.99 $1.37 $1.72 $1.78 $1.84 $1.90 4864-8254-5027 v3 Page 53 of 56  Item #8.1. DRAFT 2023 City of Calistoga Water and Sewer Utility Rate Update Proposition 218 Spa - Geothermal Discharge ($/HCF) $6.72 $20.40 $25.50 $26.27 $27.06 $27.88 Minimum Charge (for All Non- Residential Users) $57.43 $79.98 $99.98 $102.98 $106.07 $109.26 1 BOD = Biochemical Oxygen Demand 2 SS = Suspended Solids Bill Impacts: Single Family Residential (SFR) Monthly1 Combined Water and Wastewater Service Bill Impact in FY 2024 Table 4 is an example of an SFR one-month combined service bill using 12 HCF2 units of water per billing period (6 HCF per month). This example represents the most common City water and wastewater customer. For additional impacts for other types of users, please refer to the Rate Study or contact the City to discuss your personal bill. 1 Residential customers receive a two-month bill 2 1 HCF or 1 unit of water is equal to 748 gallons of water Table 4: SFR Monthly Combined Water and Wastewater Service Bill Impact in FY 2024 (5/8” meter and 6 HCF Monthly) Current Proposed Water Wastewater Total Water Wastewater Total Two Months $ 229.36 $195.74 $425.10 $ 287.08 $212.46 $499.54 Monthly $ 114.68 $97.87 $212.55 $ 143.54 $106.23 $249.77 DROUGHT: Proposed Cost Recovery Surcharge The City of Calistoga depends on water sales to fund a complex system that collects, treats, and delivers safe, reliable water to customers. When customers are asked to use less, such as during droughts, it leads to lower revenues. Lower revenues are a challenge for the city, as many of the costs associated with operating and maintaining a water system are fixed. Based on stages calibrated to drought severity, a drought recovery rate works to offset lost revenues and ensure the water utility can pay its bills and perform capital projects as planned. Temporary drought recovery rates can only be assessed if the City Council implements emergency drought stages. Table 5 shows proposed drought recovery surcharges by meter size per drought recovery stage, per fiscal years 2024-2028, that would be applied if the City Council declares a drought or water shortage emergency. These rates are both discretionary and temporary. Table 5: Proposed Drought Cost Recovery Surcharge By Shortage Stage and Meter Size FY 2024-28 Drought Surcharge by Meter Size Shortage Stage by FY 5/8" 1” 1-1/2” 2” 3” 4” 6” 8” FY 2024 4864-8254-5027 v3 Page 54 of 56  Item #8.1. DRAFT 2023 City of Calistoga Water and Sewer Utility Rate Update Proposition 218 Stage 1 $6.13 $15.31 $30.61 $48.97 $91.82 $153.03 $306.05 $489.68 Stage 2 $18.17 $45.41 $90.82 $145.31 $272.46 $454.09 $908.18 $1,453.08 Stage 3 $29.48 $73.70 $147.40 $235.84 $442.20 $737.00 $1,473.99 $2,358.38 FY 2025 Stage 1 $6.87 $17.15 $34.28 $54.85 $102.84 $171.39 $342.78 $548.44 Stage 2 $20.35 $50.86 $101.72 $162.75 $305.16 $508.58 $1,017.16 $1,627.45 Stage 3 $33.02 $82.54 $165.09 $264.14 $495.26 $825.44 $1,650.87 $2,641.39 FY 2026 Stage 1 $7.55 $18.86 $37.71 $60.33 $113.12 $188.53 $377.05 $603.29 Stage 2 $22.39 $55.95 $111.89 $179.02 $335.67 $559.44 $1,118.88 $1,790.19 Stage 3 $36.32 $90.80 $181.60 $290.55 $544.79 $907.88 $1,815.96 $2,905.52 FY 2027 Stage 1 $8.01 $19.99 $39.97 $63.95 $119.91 $199.84 $399.68 $639.48 Stage 2 $23.73 $59.30 $118.60 $189.76 $355.81 $593.01 $1,186.01 $1,897.61 Stage 3 $38.50 $96.25 $192.49 $307.99 $577.48 $962.46 $1,924.91 $3,079.86 FY 2028 Stage 1 $8.49 $21.19 $42.37 $67.79 $127.10 $211.84 $423.66 $677.85 Stage 2 $25.15 $62.86 $125.72 $201.15 $377.16 $628.59 $1,257.17 $2,011.46 Stage 3 $40.81 $102.02 $204.04 $326.47 $612.13 $1,020.21 $2,040.41 $3,264.65 The enclosed rate recommendations were presented to the Calistoga City Council on October 3, 2023. A video of the meeting is available on the City’s YouTube page. The Rate Study is available on the website at “Water & Wastewater Rate Study FY 22-23.” Scan this code to be taken directly to the Rate Study webpage. How Do I Protest the Proposed Rate Increases? You have the right to protest the proposed water and/or wastewater rate adjustments. The protest must be in writing, and it must be submitted by either the property owner or a utility customer. It must include the property service address and/or the assessor’s parcel number, the eligible individual’s name (property owner or customer), a statement to the effect of “I protest the proposed water (and/or) wastewater rates,” and an original signature. Written protests may only be submitted by mail or in person to the Calistoga City Clerk at City Hall, 1232 Washington St., Calistoga, CA 94515, or during the Public Hearing on Tuesday, December 5, 2023 at the Calistoga City Council Chambers, 1307 Washington Street, Calistoga, CA 94515. Protests must be received by the City Clerk before 4 p.m. on December 5, 2023, or they may be personally 4864-8254-5027 v3 Page 55 of 56  Item #8.1. DRAFT 2023 City of Calistoga Water and Sewer Utility Rate Update Proposition 218 submitted to the Clerk at the Public Hearing before the conclusion of the Hearing. The Clerk will not accept or consider any protest received after the conclusion of the Public Hearing. Only one written protest per affected property will be counted. Telephone, e-mail, and fax protests will not be accepted. Oral comments will not be counted as protests unless accompanied by a written protest as outlined within this Notice. At the conclusion of the Public Hearing, the City Council will consider adopting the proposed changes as follows: (1) If fewer than a majority of parcels file a written protest, the City Council will consider adjusting water and/or wastewater rates as proposed. (2) If a majority (50% +1) of affected parcels submit protests against the water or wastewater rates before the conclusion of the Public Hearing, the City is prohibited by law from changing water and/or wastewater rates at this time. If adopted, the proposed water and wastewater rates will take effect beginning March 1, 2024. The reasons for the rate adjustments, the basis upon which they were calculated, and the amount of the proposed water and wastewater rates are described in more detail in the Rate Study, which is on file with the City Clerk and available on the City website at www.ci.calistoga.ca.us. Statute of Limitations for Challenging Proposed Rates Please note that pursuant to California Government Code section 53759, there is a 120-day statute of limitations for judicially challenging all rates set forth in this Notice that runs from the effective date of the ordinance approving these rates. Contact: Questions and comments may be submitted via email to ratestudy@ci.calistoga.ca.us or by calling the Public Works Department at (707) 942-2780. 4864-8254-5027 v3 Page 56 of 56