 Hello, everyone. It looks like we have all the board members. Do we have all the staff members that are attending? Thank you, Chair Watts. I think we have one or two folks that need to still be promoted. Okay. I'll give it a few minutes. I need promoted, Jennifer. I need promoted. I think we are still needing Peter and Colin promoted for item one. Okay. Taking care of that right now. Thank you. This is what happened. All right. So, yes, Chair Watts, I think we have everyone present from the staff side. Sorry, one moment, just getting some stuff situated. Sorry, thank you all for your patience. All right, well, let's get started. I'll call the meeting at 12 33. Secretary, can we have a roll call? Yes, Chair Watts. Here. Board Member Grable. Here. Board Member Wright. Here. Great. Thank you. And just as a reminder, please mute your phones while you are not speaking. And that would be great. And we will move to any announcements. All right. Seeing none, we will move to public comment on non-agenda items. If you're wishing to make a comment, please dial star nine if you're on the telephone, or raise your hand if you are using the Zoom feature. Secretary, do we have any public comments? We have no public comments. Thank you. All right, we'll move to new business item 4.1. Director Burke, if you would like to introduce this item. Thank you, Chair Watson, members of the subcommittee. So we have our first item, which is item 4.1. And that is going to be an overview of the Urban Water Shortage Contingency Plan Water Shortage Charges. And we have a team here today. So we'll have Pierre Martin, Deputy Director of Water Resources, Collin Close, Senior Water Resources Planner, Bob Reed with the Reed Group, and Mark Hildebrand with Hildebrand Consulting Presenting. And I believe I'm turning this over to Bob to start us off. Is that correct? Great. So Bob, if you could, please go ahead. And I think, Kimberly, you might be sharing your screen. I'll be doing the sharing. Are you ready, Bob? Sure. Good afternoon, everyone. While Kimberly's pulling up the presentation, we actually have a single presentation that's going to cover the Water Shortage Contingency Plan, demand fees and rates. And I know there are each separate agenda items on your agenda. So what I might suggest is that we pause at the end of each piece and respond to questions and comments and so on before we move on to the next piece. Yes, Bob, that would be great if we can handle it that way, please. So we can introduce each item. Sorry about that. Could you all see that when you had that? Because I won't be able to see both. So I just want to make sure that you could see it when it was showing. We cannot see the PowerPoint. Oh, you can't. OK, so try this again, and I'm going to mute myself. There it is. Perfect, perfect. Yeah, so I'll be leading the discussion on the Water Shortage Contingency Plan and the demand fees. And I'm going to let Mark Hildebrand lead the discussion on the rate aspect. But next slide, Kimberly, if you could. So we'll talk about each of those three components. They're all all that the work under all of these components are being done in parallel right now. We've got draft administrative draft reports that are being reviewed by staff and so on. But this will continue to evolve and be fine tuned as we move forward. We're going to start with the discussion of the financial strategy associated with the Water Shortage Contingency Plan and then the demand fees and the rates. And then wrap up with talk about next meetings and next steps. And so on. Next slide. We can continue. So the Water Shortage Contingency Plan is part of the city's Urban Water Management Plan and the Urban Water Management Plan is something that's been a requirement, I think, for about 35 years now. It's a state mandate that every five years the city developed this plan that really talks about water supply and water demand and the relationship between those two things, including water conservation, demand management measures, supply reliability and the like. One of the components of that Urban Water Management Plan is to develop a Water Shortage Contingency Plan, which addresses what the city would do in the event of a water shortage and different stages of water shortage. And this has been part of the Urban Water Management Plan for a number of years, gone through a number of cycles. We have been working with city staff on the financial aspect of Water Shortage Contingency Plan. In particular, what happens is as water sales fall off because of water use reductions during a shortage, both revenues and expenses fall, but revenues fall more than shortages. And so it creates a financial deficit. So the city is developing their Water Shortage Contingency Plan to include eight shortage stages. The state's requirements define six stages and the city's gone into a little bit more detail and come up with eight stages. And part of that is to include water shortage charges, as well as excess use penalties to help bridge the financial deficit. So we go on to the next slide. The stages of shortage are one through eight, as I just mentioned. The first stage is really just a voluntary stage for water use reductions of up to 10%. So that's a very minor or modest shortage situation. Beyond that, each stage becomes mandatory in that there are mandatory water use restrictions. They become more stringent, if you will, as you go to higher levels of reduction. We won't go into what all those water use reductions that's being developed separately. We're gonna focus on the financial aspects of this, but things like not being able to wash your car to water your lawn or limit watering and all those sorts of things are those measures. But we're gonna focus on the water shortage charge, which is an adjustment to the normal water usage rates to generate some additional revenue. And those would kick in starting in stage two and increase gradually through the various stages. And then there's also an excess use penalty, which coincides with specific water use allotments to each customer in the more severe stages of shortage. So starting in stage five through stage eight, there's also an excess use penalty. Those penalties can be avoided by all customers because if they are meeting their allotments, living within their allotments, they won't experience that penalty. So this slide just sort of summarizes when each of those come into play. We move to the next slide in conducting the financial analysis. We're using the financial model developed for the rate study to look at what happens to both revenues and expenses at various stages of shortage. So as shortage becomes more severe, what happens? And you can see from this graph that we create a deficit. If everything is balanced under normal supply conditions, revenues equal expenses in general, everything is balanced and everything is financially stable. Even at stage one, we start to see a little bit of a change. While we're selling less water, so we're buying less water, our expenses decline some. But because of the rate structure, is tilted more towards usage revenue in part to encourage water conservation, our revenues actually fall more than expenses. In addition, in shortage stages, some expenses will go up. Our water conservation activities, for example, will go up and outreach activities can increase during a shortage. So you can see from this as you go all the way up to stage eight that there is a financial gap between revenues and expenses. And so we wanna look at, okay, what are the approaches that are possible to help bridge that financial gap? And we've got a three pronged approach. So if we go to the next slide, we are suggesting a three prong approach. And this is really consistent with what's been done in the past. I should have mentioned that you already have shortage charges and excess use penalties from prior water, shortest contingency plans. And we're updating that with the new urban water management plan. So this basic structure is already in place and we're looking at updating it consistent with new state requirements and guidelines as well as updated analysis. But we've got a three prong approach. The first approach is that we can dip into some of our available reserves. We have either undesignated reserves within the water utility or even the catastrophic reserves that could be used to help bridge the gap. So in effect, we could reach into our pocket and use some of the money that we find there to bridge that gap. Second, we can implement a water shortage charge. And I'll talk more about that in a moment, but that really generates some additional revenue from customers based on the amount of water that they're using. So all customers would pay a little bit more that usage rates would increase slightly to generate a little bit of additional revenue. And I'll say, and I'll show more specifically in a few minutes, but if customers are meeting the water use reduction goal, even though the rates are a little bit higher with the water shortage charge, their bill would be a little bit lower than a normal bill with the standard rates. And that's by design. And then the third prong of our three prong strategies is the city could defer some of its capital improvement program and reduce spending on capital projects in effect preserving cash. So our three prongs are, we can use available cash that we may have. Two, we can generate some additional cash. And three, we can preserve cash by reducing our capital spending. And we can use those in concert. So if we go to the next slide, we actually looked at this at all, across all eight stages of water shortages. And the height of these stacked bars represents that financial gap that was in that prior graph, the difference between revenues and expenses. And you can see there is no gap under a normal supply situation. In general, our revenues are meeting, are covering our expenses. In stage one is voluntary measures to reduce water use by up to 10%. And there we felt that, well, in that modest conservation mode that we would just look towards our financial reserves and most likely some undesignated reserves that might be available and just basically bridge that gap using those monies. But as we move into mandatory conservation mode for stage two through stage eight, here we are suggesting that we implement the water shortage charge and that's represented by the blue bar here, the blue part of these bars. And you can see it increases with increasing stages. So that the amount of the shortage charge would increase with increased severity. And then you can see once we get to stage three and beyond that we could also reduce the amount of capital spending. And that's represented in the light green portion of these stacked bars. And we could do that more and more. Now there's some discretion here is to which of these three things you do along the way. And I think that flexibility is built into the strategy but what we really wanted to illustrate here was using all three prongs of this strategy to bridge that financial gap. Some of it is generating new revenue. Some of it is using our available reserves and some of it is based on reduced capital spending. So if we go to the next slide, this is representing the amount of rate revenue that we have from the rates through the various stages. And primarily we have monthly service charges that's the fixed part of the bill and that's represented in the dark brown portion of this graph and then the normal water usage charges from the normal water usage rates. That's the tan color here. You can see under normal supply, it's about 75% of the revenue comes from those usage charges. But as we start reducing demand because of the water use reductions, that part of the bill declines. The fixed service charges remain constant. That's a fixed portion of everybody's bill. And then in stage two, you can see that water shortage starts to generate some additional revenue. So it gets layered on top but it never comes up to the total amount of revenue that we had previously under normal supply conditions. But it is helping to bridge the gap that we have. The way these water shortage charges work is that it's a percentage reduction or percentage amount that's applied to the normal water rate structure. And those percentages vary with each stage of shortage. And again, you've already got the structure in place under your current shortage rates. If we go to the next slide, this illustrates the rates and the shortage and the usage, excess use penalties under each stage of reduction. On the left side of this table, we have the normal water usage rates. And I've plugged in numbers from the preliminary rates for next fiscal year. So this is coming out of the rate study. For single family, for example, it would be about $6.03 for the first tier and jumping up to $6.83 in the second tier. And you can see the other water usage rates for the different customer classes and rate categories there. We don't have any change in those rates for stage one. So that's not shown here, but because that's a voluntary program, but in stage two, you can see the rates have increased and the water shortage charge is a 5% increase to those water usage rates. Again, the fixed service charge part of the bill does not change, that remains fixed at that amount. But you can see the tier one rate goes from 603 to 633. So representing a 5% increase there. And then similarly, tier two goes from 683 to 717. So everybody is paying a little bit more for the water that they're using. Again, if somebody is reducing their water use in that 11 to 15% range, while they're paying a little bit in that water shortage charge because they're using less water, their bill will go down slightly. And you can see the rates changing throughout the other customer classes. Similar adjustments to the rates going through stage three and stage four. And then things change when we get to stage five. And this is where we get into specific use allotments for each customer category. It's based on a certain number of gallons per capita day for residential in stage five and six. There's a irrigation allotment and then that's even cut off at the most severe stages in state seven and eight. And then there's other parameters for the commercial and other customer classes. But we go away from the standard two-tier structure to everybody's got a uniform rate if they're within their allotment. And then the excess use penalty is effectively creating a new tier structure with two tiers. There's an excess tier two excess use penalty. And then a tier three is a further penalty. And you can see up at the top of this chart, you can see at stage five that tier two excess use penalty is 10% on top of the usage rate. And tier three is 20%. And then those percentages increase as we move up to stage eight. Again, I wanna reiterate while that water shortage charges will generate additional revenue and anybody using water will pay a little bit in water shortage charges. Excess use penalties can be completely avoided by all customers by staying within their water use allotment. And so we are not planning or anticipating on any revenue coming in through those excess use penalties. However, any revenue that is generated from that because people don't meet their allotments, that money would be directed either towards replenishing reserves that are being drawn down or directed towards conservation and not reach activities associated with the shortage conditions. So they would be used for purposes consistent with the water supply shortage situation. So there's a lot of numbers, a lot of graphs, a lot of detail in this chart here but I wanna to illustrate that. These percentages at the top would be applied to whatever the water usage rates are at the time that a shortage is declared. So the city council needs to declare we're in stage four right now because of water supply conditions. And so we're going to impose the charges, the shortage charges associated with stage four. So that would be a declaration by the city council. And then if we go to the next slide, what I wanted to do is illustrate what happens to people's water bills. And this is a typical single family residential customer that might use 10,000 gallons of water a month under normal conditions. This might be a typical summertime bill. And then what happens through the various stages of water shortage. So the top half of this chart shows what happens if that customer is meeting the water use reduction goal at each stage along the spectrum. And then the bottom part of this is what happens if they don't cut back their water use at all. And going across this table shows the different components of the water bill, monthly service charge, usage charge, shortage charge, the excess use penalty if it applies. And then finally the total bill. And then the last column is how their bill would compare to a normal bill under the standard normal rates without any use restrictions at all. So you can see here that if a customer is meeting the use reduction goals that they will have a slightly smaller bill even though they may be paying, they would be paying a shortage charge for most of that. But their bill is going down somewhat because their usage is going down whereas if they're not reducing their usage, their bill can go up and in the later stages can go up pretty dramatically because of the excess use penalty in the most stringent conditions. So that's a lot of information to go through pretty quickly but I wanted to summarize this financial strategy. Again, it's very similar to what is already in place within the water shortage contingency plan, the existing one. And we're really updating this consistent with the new urban water management plan and related financial information. Are there any questions at this point? Does this conclude the presentation for 4.1? It concludes my presentation for 4.1 unless staff wanted to add anything. Thank you. Thank you. Staff, are there any additions to add? Okay, great. Members of the committee, do you have any questions regarding item 4.1? Hearing none, we will take public comment on item 4.1. If you wish to make a comment via Zoom, please raise your hand. If you're dialing in via telephone, please dial star nine to raise your hand. Secretary Aitha, do we have any public comments? There are no public comments on this item. Great, thank you. So we will move to item 4.2. I believe deputy director Kimberly Zanino. Yeah, so item 4.2, I'll just introduce it really quickly. We'll be the preliminary water and wastewater demand fee study update. And for this item, we'll have deputy director Kimberly Zanino, or deputy director of water administration, Kimberly Zanino, as well as our consultants presenting for this item. And so I will again, turn it over, I believe to Bob and he's gonna continue with his presentation. I will just add that we are obviously working through this report now, looking at the numbers. So there can be adjustments as we go through this before you see a final report that comes to you, but we wanted to make sure that you got to see, you know, the work that's been done so far and where we're sitting right now. And so that's what Bob's gonna be showing you today and a very high level overview of it. And I will start sharing my screen again for that piece. Yeah, thank you for those comments. We are fine tuning things as a, and you can step forward a couple of slides there, Kimberly, thank you. Yeah, so we are going through and making some revisions. One of the significant things that we did with this update of the demand fees was to look at current or recent water use information. And so we went back and looked at detailed water use data for residential customer classes from 2016 through 2019. So the last four years of complete water use data that we had in our updating use factors that apply to those residential demand fees and water and wastewater demand fees. So demand fees are the often called capacity charges, but they're the one time fees paid by new development for capacity in the water and wastewater system. So it's charged to new development rather than to existing ratepayers. These fee calculations were last updated in 2014. So about six years ago, although the city does adjust the fee amounts each year annually for inflation based on the construction cost index. And so that helps to keep them in pace with inflationary pressures. But it is a good idea to update the overall calculation about every five years or so. The legal standard for demand fees or capacity charges is specified in the government code. And basically it states that capacity charges shall not exceed the estimated reasonable cost of providing the service for which the charges are imposed. So that's a pretty broad standard, but basically it's, and it's a reasonableness standard, but we're looking at the cost of providing capacity that's going to be used to accommodate new development and development is paying for that. And we are using a buy-in methodology. So if we go to the next slide, there are a few, several different methodologies or approaches for calculating demand fees. And the city currently uses, and this update is continuing to use what's known as the system buy-in methodology. And basically what we're doing is looking at the present value of the existing facilities or existing infrastructure and dividing that by the existing units of development or the demand that's being placed on the system to come up with a cost per unit of demand for water and wastewater systems, respectively. Some of the attributes of this methodology, it's really best applied in areas that are largely built out or where the infrastructure is largely in place and new development is going to be relying on capacity that is existing in the system or in some cases, even if it's being extended that the cost of new capacity is similar to historic capacity. But that's the situation in Santa Rosa where there is continued growth, but most of the city is built out and largely because of reduced demand in recent years, there is available capacity within the system because demands have declined. This is a common and well-accepted methodology within the industry. It's something that the development community is familiar with. It incorporates the cost of existing facilities rather than relying on plans and estimates for what future capital facilities might cost. So we're going into the fixed asset records within the financial accounting system to come up with the value of the system. So we're not relying on future cost estimates or future assessments of capacity needs and capital needs, master plans and whatnot. So we're not relying on those studies. And the buy-in fee is a reimbursement for investment that the city has already made. It's basically you've already built capacity in the system and so as new connections connect, they're paying their share towards that capacity and so the city is being reimbursed for investment that's already been made. So moving on to the next slide. This summarizes the calculation in a very high-level fashion but and we show both the water system as well as the wastewater system. And on the wastewater side, we have both our local wastewater, basically the collection system for the city and then the sub-regional treatment plan. And we look at those separately because the demands placed on each of those is separate. But we start at the top by looking at the fixed asset records. And what we do is we look at the original cost of each capital asset and there are literally thousands of them across these utilities. The historical cost and then that's depreciated to book value because the facilities are no longer new and then we escalate that up to current dollars. So it's referred to as a replacement cost less depreciation. So it's recognizing the current value of assets but also recognizing that they're no longer new. And so we go through that adjustment to come up with these valuations. And you can see over $200,000 for both the water and the local wastewater system and almost $400,000, not $1,000,000, millions of dollars for water and local wastewater and the sub-regional system is close to 400 million in that replacement cost less depreciation calculation. We then make some adjustments to that. We recognize that much of the facilities or part of the facilities are debt financed and so we can add in some of those financing costs. So we add in debt issuance costs as well as interest costs, interest that has already been paid on debt financing and we do a present value calculation of both of those as well. We then subtract outstanding principal on outstanding debt. Effectively you haven't bought yet or paid for that portion of the facilities to the extent you have outstanding principal. Not much outstanding principal for water and local wastewater but quite a bit in the sub-regional system and that's been the way that financing has gone generally. And then also we can add in monies that you have that are available for capital projects. And so these are things that are designated or have been earmarked or directed towards capital projects. That dollar in the bank will be the pipe in the ground in the near future. And so we can add in that. And this includes the money that's been appropriated for the CIP and then the other money that's earmarked. For example, demand fee revenues that are sitting aside is added to this. And so those are the comes up with our total valuation. We then divide by the current system demands in MGD. So we look for the water system, we look at the peak month demand for the wastewater system. We're looking at basically the sewer cap or the average dry weather flow, the sewage generated by customers. And again, we've got the local wastewater system which is the city. And then for the sub-regional treatment plant we're looking at the region as a whole with all of the contributions there. So then we divide the valuation by the demand and we come up with what we call the base demand fees. And here we add together the local wastewater and the sub-regional components and we come up with what we call the base demand fees. You can see both of these are increasing with this calculation, particularly on the water side but this is the unit demand fee as updated. If we move to the next slide, I mentioned early on that we've looked at the usage factors for the demand fee calculations, particularly the residential use factors. And this is a summary of the new factors. These are based on looking at peak month water use from 2016 through 2019. I can tell you for all of these residential classes that the water use has come down as a result of, you know, we were in a drought in 2014, 2015 timeframe and so much of that water use reduction became permanent. So the water demands by residential customers are less. For the commercial industrial irrigation accounts, those demand fees are based on actual estimates of demand for each particular customer. So we continue to express the fee in a gallon, in a dollar per 1,000 gallon per month basis. So we're just looking at 1,000 gallons per month there and that's applied to a water use that's determined on a case by case basis for your non-residential connections. When we apply these usage factors to the water demand fee, if we go to the next slide, this table summarizes the current and proposed demand fees. I will mention we are fine-tuning a bit the different types of residential development based on the new and more complete water use factors that we're using. And so there will be some adjustments to the fee structure for the residential development because of this improved information and greater refinement that we have available to us now. And so we'll see, you'll see some changes in this a little bit as we go forward. But you can see here for each of the residential types, single family, duplex, triplex apartments and so on, that almost entirely across the board here. Well, I take that back. We're seeing both some increases and some decreases in the fees. We had a pretty significant increase in the base demand fee, but water use reductions. And so we see some pluses and minuses across these different residential classes here. If we go on to the next slide with the wastewater, the same sort of thing here, we're looking the average dry weather flow is really determined based on the sewer cap for residential customers. And again, we looked at the last four years for our different classes. And again, these use factors have all come down pretty significantly across the board as a result of lower water demand and water usage in the last several years. When we apply this to the wastewater demand fee, the base fee in the next slide, you can see here, and here it is uniformly across the board for all residential customers that the wastewater demand fee is coming down. It does go up a little bit for the non-residential accounts. And again, that would be applied to a water sewer flow calculation for each development. And I know staff is working right now and also updating those usage factors that are applied on a case-by-case basis to your non-residential development. So that information is also being updated in parallel with this demand fee study. But I know the amount of these fees for new development is something of concern and of interest to the city and the city council, particularly the new development community. But this is reflecting updated information and if we go to the next slide, you can see if we look at both water and wastewater demand fees here combined together. And I'm showing the current demand fee amount as well as the proposed amount for combining water and wastewater together. And here you can see across the board for all the residential types that there is a reduction and fairly significant reduction in some cases in the combined water and wastewater demand fees or these development types. Again, the base fee amount is increasing with this calculation reflecting the increased value of the systems, but the use has declined and overall that declined more than offsets the increase in the fee amounts. And I think that was the last slide for the demand fees, yes. So again, going through a lot of information very quickly here, but to summarize we are updating these fees. We are continuing to make some refinements as we work through these issues with staff, but Madam Chair, if there are any questions be happy to respond to those and that concludes my presentation. Thank you. Do any members of the committee have any questions? Board member Wright. Yeah, just a small detail on the wastewater demand fee, specifically on the residential because that's what I understand mostly. Why does the size of the lot make any difference when the actual fee is based on water usage on dry weather flow or on winter time use? Yeah. Great question and I'm not surprised that it's come up. There are many different factors that influence water usage and you wouldn't expect that lot size would affect sewer flows since the irrigation doesn't end up in the sewer system but lot size can be an indicator of other things that do affect indoor use and things might be the number of people in that household or their water use appliances that they have or just their habits and so on. And so what we did because we were looking by lot size for the water demand fee and we have that we do see that corresponding change but we also see it on the wastewater side too in terms of their sewer cap that it's not as strong as on the water side it's not as big of a difference across there but there is very much a difference there. So it's and we have to go where the data takes us. Okay, thank you. Are there any other committee questions? Okay, seeing none, I will open it up to public comment on item 4.2. If you wish to make a comment via Zoom please raise your hand. If you are dialing in via telephone please dial star nine to raise your hand. Secretary Aitha, do we have any public comment? We have no public comments on this item. Great, thank you. Now, Director Burke if you'd like to introduce item 4.3. Thank you, Chair Watson, members of the committee. So item 4.3 is gonna be our fiscal year 21-22 through fiscal year 24-25 proposed water and wastewater rate setting process update. I do wanna take a moment just to thank the committee members and actually all the board members for meeting with us with your respective council appointors to give feedback on the proposed water and wastewater rates that we have so far. Those were really very informative meetings. We received a lot of very good feedback. I think in general we heard that appreciation of consideration of the economic times we're in and that what we're putting forward is reasonable taking into account everything that we're having to address as being an essential function for the needs of our community as well as being prepared for additional catastrophic type events that we're probably gonna continue to see in our community and the desire to continue to sharpen our pencils and see what we can do to see if there's any ways we can continue to lessen potential increases. So we're continuing to look at that and continuing to work on this. And now I'm gonna turn it over to Mark Hildegrand. He's gonna be leading us through the presentation on where we are with the current rate setting at this time. Great. Thank you. I'm actually not able to see the screen but I think you're on slide 22. Okay, great. Thank you. So the slides that I'm gonna present here will be familiar. Most of them have not changed although we do continue to do analysis. We'll give you some updates on what transpires since the last time we spoke and just remind you of the conclusions that we've come to so far and feel any additional questions that you might have or new thoughts that you may have had. So next slide. As a general reminder of how these studies go we go through three steps. The revenue requirements is essentially a financial plan where we're looking at the utilities as a whole to understand the revenues that are coming in and the expenses that are going out so that we can understand how much rate revenue we're gonna need in the future and devise any debt strategies that might be appropriate to minimize rate increases. Once we understand how much rate revenue we need we do the cost of service and rate design which is really looking at how we're going to collect that revenue, recover that revenue from the rate payers that drive the costs within the system. So we'll take you through both of those conclusions during this presentation at a pretty high level. Next slide. So just as an update this is one of the few slides that will be new to you. We wanted to share what's happened since the last time we spoke. The big news as you are probably aware is that the 2020 series A and series B bond has been funded and completed. It's been issued. So the 2020 A was new money for the UV system at the sub-regional plants and the 2020 B was refunding a 2014 bonds. So you receive very good terms. Money's cheap right now and this was a great time to go out for debt and the city's benefiting from that. You were able to fully fund the entire UV system with $70 million with this 2020 A series. And then if you look at the last bullet there by refunding the sorry, I missed both the 2012 wastewater revenue bond you're actually going to be saving your rate payer $16 million over the next 14 years. So that was a really big win and great timing for the city to take that initiative. On another front, we do continue to examine to make sure that we have a full accounting of all the reserves within the different enterprises and we've verified those. We did make some small adjustments but by and large we verified what we had already assumed. And then you'll see that between these two changes the overall rate adjustments that we're recommending at this time have not changed since the last time we spoke. As is Burke pointed out, we are going to continue to look at it and sharpen our pencil, looking for opportunities to minimize the rate increases especially given the environment that we find ourselves in and the pandemic. But this point in time, the overall rate adjustments are still the same as they were last time we spoke which are pretty modest, relatively speaking. Next slide. So here's the overall picture of the water utility. We have draft up there because again these numbers are subject to change but the key numbers here, let me see if I can get a pointer out. Let's see, I don't think you can see my cursor but down at the bottom you see the percent increases that are being recommended, three percent in fiscal 22 which would be effective July 1st, 2021 and then 4%, 4%, 4% in the years following that. The top graph shows in the foreground the columns in blue represent expenses and the background in green represents revenue and really what we're trying to do with this exercise is make sure that in every year the columns and the expenses are pretty much at the same height that represents a balanced budget for that given year and you can see that that happens in the middle graph with the lines. You can see the target reserves are equal or the actual reserves in Indian fund balances are equal to the targeted reserve levels. So we have very steady outcome there in every year. The one piece that you've noticed there is the dashed line in the first year the dashed black line in the middle graph jumps up. That's as a result of the cash traffic reserve targets increasing the city recently completed a study with its consultant, it's an engineering consultant on the appropriate levels for its cash traffic reserves and they are recommending higher reserves than you previously had. And so you can see that jump but luckily the city is in a position that its existing reserves are sufficient to cover most of the increase in the reserve target. Next slide. So pretty similar picture on the sewer side and wastewater. The rate increases at the bottom there are somewhat similar. It's 4% in the first year, then 4% and 2% and then 2%. The probably the biggest difference is that wastewater doesn't have quite as much available reserves to meet the new increase in the reserve targets. So there is going to be a period of time over the next five years where we're recommending you slowly build your reserves to get up to that target level by 2025. But aside from that, it's a similar financial picture, very steady and modest rate increases. Next slide. So that concludes the financial plan portion where we assess the amount that rate revenue needs to be adjusted each year. Next we shift gears to look at what the rates should actually look like. So when we do this, we're following the objectives that were followed during the last rate study, which was five years ago. And we generally follow these principles regarding financial sufficiency, legal compliance, conservation, revenue stability, minimizing rate increases, accounting for affordability and making sure that the public understands what we're doing and what they're paying for. So those are the general principles that we followed over the course of the study. Next slide. This gets into the principles that are used in assigning cost to customers. So what we look, when we do the cost of service analysis, we're looking at how different customers drive the costs of providing them with service. One of those are customer costs. So basically what does it cost to administer someone's account? The fact that you receive a bill every month and that someone reads your meter and that they manage you in a system, there's costs associated with that. Capacity costs has to do with the size of your meter and the amount of capacity that an individual customer requires of the system. Therefore, the sizing of the pipes and the pumps and the infrastructure is attributed really to the size of each customer's meter size. And then there's the commodity cost and the water supply and the treatment costs, which are really more driven by how much actual commodities being used and the more water or wastewater any one customer uses or produces is going to drive these costs. And so we assign those costs to customers based on their usage behaviors. Next slide. So when we look at the tiered rates that exist for water usage, this is a helpful graph to help explain why there's a difference between tier one and tier two usage. Really what you see, the difference is that the general costs are the same for all water use. But then the water supply cost is slightly different. You can see in the first two columns, tier one, the blue block is a little bit smaller than the blue block for tier two. The difference there is that we're giving the benefit of your groundwater supply to tier one water users. Your groundwater supply is limited, but it's by far your cheapest source of water. And so we are including those costs in the tier one water, whereas tier two is made up of entirely of Sonoma water, purchased water from Sonoma water. And so that's gonna be marginally more expensive. In addition, we also recover the cost of your conservation program from tier two water users. So that's what ends up making the difference between tier one and tier two users. Next slide. So here's a detailed schedule of your water rates. I'm not sure that we need to spend any time or too much time staring at this table because in the next few slides, it's gonna translate these numbers into what actual bills look like. And I think that's probably a more useful use of your time. I guess the key to notice here is in that second to last column, the percent change, you'll notice that it's very steady or it's very even between the different types of rates. The only rate that is kind of out of sync with the others is maybe tier two for residential. But by and large, all of these rates are all going up in a very similar magnitude. These differences will only be effective in year one. The reason that these differences in the rates are happening is because we made some updates to the cost of service analysis. And when the utilities general cost profile changes and different levels or costs are spent on capital versus operating versus chemicals and that type of thing, the different buckets change by different relative amounts. And so you end up having shifts in where the revenues recovered. And so that's why you have these differences in how much they're all gonna go up by but in year two, all of these rates will go up by exactly the same percent. Next slide. Here's a similar picture for wastewater. What you'll notice here is that the usage rates are going up by six, almost seven percent and the monthly service charges are going down. And again, the reason that this is happening is because there's been a sort of fundamental change in the cost profile or the expense profile for the wastewater utility in terms of a shift of how much capital spending is happening as compared to other types of spending. And that has an impact on where you recover your revenue because the monthly service charges are recovering fixed costs whereas the usage rates are recovering variable costs for the most part. And so because there's been a shift in where those costs occur for the utility, we're seeing a shift here and where the revenue is being recovered. Next slide. So here's the table I was referring to earlier and what we've done here is we run what the typical monthly bill will look like for different types of customers. You can see that we've looked at four different types of single-family residential depending on their water use. All of them have the most common meter size which is a five eighth inch meter. But we looked at four different levels of water use and shown you what their bill currently looks like for water and wastewater and what it will look like under the proposed rates in year one and what that percent changes. And we've also done that for different multifamily accounts and different commercial irrigation accounts. And again, what you can see, I think the takeaway from this table with all these numbers is that last column which shows that almost all customers are being treated, they're all being treated very similarly. You're not seeing a very big divergence and the rate increases that any one customer class is seeing relative to another. So there shouldn't be too much concern in that regard. Other studies that Bob and I are engaged in have more fundamental changes, more significant fundamental changes to how the utility recovers their revenue. Either they choose to follow a different rate design or just a more higher magnitude change in their cost occur. And you'll see really big disparities in this percent difference of one type of customer versus another. In this case, they're quite similar. So hopefully that is something that will make it more palatable for your great customers to see that everyone's being treated on equal footing. Next slide. So that concludes this presentation. Kimberly or Jennifer, I don't know if you wanted to say a few words about this communication program. Yes, I will talk a little bit about it. We have had more information on the communication and the campaign in previous subcommittee meetings, but you have all seen that now come before the full board and seen the first video that has already been released. And so we just wanted to remind you that we are continuing to work on the value of water campaign, that there will be additional videos coming out and we will bring those to you as well for you to see. We are continuing to reach out through all of our online tools that are available to us since we are currently in a situation where public meetings are happening quite differently. So we will continue to do as much outreach as we can moving along the communication outline that Elise Howard had provided for you at the full board meeting. But we just wanted to keep informing you and keep reminding you that this is happening at the same time with everything else that we are working on. We are just on to next steps and I will hand this back over to Marker. I can take this to Mark if you want me to. Yeah, if you don't mind, I think that would do better. So as you know, we are looking at our reserves. We are looking at the recommendations from the engineers that have come through. We are also weighing where those reserves should sit. Those policy levels should sit as we bring new language forward to you and new policies to approve that we will be updating for the actual reserves for operating catastrophic so that you will be seeing new policies coming in your way. And so as we do that, we continue through this process since it's going in parallel with so many other processes, it's a good time for us to be looking at this as well. So that will be coming your way. We are also, as you've heard from both Jennifer and Mark, working to refine and minimize near-term rate increases in any way that we possibly can. We will be looking at some things based on the fact that we had such a significant savings from the bond funding that we just completed. So we will continue to look at any ways that we can do that as well as any efficiencies that we may be able to find and in any way bring down those rate increases for our customers. We will bring the actual report to the budget subcommittee. So that will come to you. We are looking at mid-January. And then as we move forward after that piece, which would be the time that we would be requesting a recommendation from you to the full BPU. And then that would go to the BPU in March. In March, we would be looking then for a recommendation from BPU to city council. And we would then see city council afterwards with a final report and a presentation in March as well. And then the Prop 218 notification process would start in the public hearing in May so that our new rate schedule would be able to go into effect in July. Based on just some cancellations with city council meetings, it wouldn't be likely July 1st, but sometime in July that it would be put in place and begin. And I think that is the last slide. So I will stop sharing my screen and we are available all of us to answer any questions that you may have. Bob? I was just gonna add very quickly the water shortage rates, part of the shore's contingency plan do need to go through the Prop 218 process. And while the adoption of the urban water management plan and the shore's contingency plan is going on in parallel, the rate component will be folded into the Prop 218 process for the general water and wastewater rates. So that'll coincide and that'll work just fine. And then on the demand fees, those are moving forward in a parallel track too, but there's a separate adoption process for those, but the similar timeframe. That was actually my question. So thank you. So with that, I'll see if any of the other committee members had any questions. Board member Wright? Refresh my memory. It was the reserve increase on the wastewater side. That was primarily sub-regional. Am I remembering that correctly? There are actually recommendations for increases in catastrophic reserves for the wastewater side and there will be, which hasn't been completed yet on the sub-regional side as well. So we have a placeholder there for catastrophic reserves on the sub-regional side. And so those are just now being finished up and that will be a factor as we move forward and bring you back the final recommendation and the final report in January. Okay, thank you. Any other questions? All right, I just wanted to kind of get a timeline for the Prop 218. What is the amount that has to be given to the public? How much notice is it for rate changes? So we start that in May. Of course, we'll start the outreach and we already are starting the outreach with the public so that they're well informed prior to that, but there has to be a 45 day noticing period and then there has to be a public hearing and then there has to be a second reading before it can actually go into effect. Okay. So that's why we start in March and then May and then July would be the actual timeframe. Great, thank you. With that seeing no more questions, I will open it up for public comment on item 4.3. If you wish to make a comment via Zoom, please raise your hand. If you're dialing in via telephone, please dial star nine to raise your hand. Secretary Aitha, do we have any public comment? There are no public comments. Great, thank you. With that, I believe that concludes our agenda. So with that, we will adjourn the meeting at 1.36. Thank you very much. Thank you all. Bye, thank you.