February 27, 2017
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Cotati OKs water, sewer rate study

By: Dave Williams
February 3, 2017
Reed Group to perform study at cost of $49,250 to the city in first step of possible rate increase

The Cotati City Council took initial steps in what possibly could be water and sewer rate increases by unanimously voting at its last meeting (Jan. 24) to execute a professional services agreement with the Reed Group to prepare a water and sewer rate study not to exceed $49,250.

In addition to the $49,250 price tag, the county also authorized budget amendments to allocate $14.025 and $5,225 in additional funds from the unappropriated water and sewer enterprise funds, respectively for this study. Cotati owns, operates and maintains water and sewer utilities, and under state law is permitted to periodically adjust its rates to support these utilities to recover expenses. A rate study, which forms the basis of the cost justification and includes a five-year rate model, is typically updated every two to four years to adjust for changing conditions including inflation, fluctuating annual water demands, and to reflect the current five-year Capital Improvement Program. Cotati last completed a rate study in February 2013.

Because of Proposition 218, a city is allowed to make rate adjustments to merely cover expenses rather than to make a profit.

Cotati city staff, in a report, states how the Reed Group specializes in preparing water and sewer rate studies and has completed studies for public agencies throughout California, including nearby cities of Santa Rosa, Rohnert Park, Healdsburg, Petaluma, St. Helena, Cloverdale and the Town of Windsor. Bob Reed, president of the firm, has more than 30 years of experience in the water and wastewater field and more than 26 years as a utility rate consultant.

There are numerous facets to this study, including: a multi-year financial plan model to reflect
operations, capital and debt obligation to identify annual revenue requirements; and the cost of service analysis and rate design. Rate schedules will be developed for up to a five-year period. Also, there will be a water shortage financial analyst to help the Cotati City Manager, Damien O’Bid, manage future potential financial risks associated with water shortages. For an additional cost of $3,300, Cotati has exercised the option for water shortage rates, which are used by public utilities to moderate the financial impacts of shortages by adjusting rates according to the water shortage stage along with the use of reserves.

Also, the city agreed to pay $5,500 for the option of service justification specific to keeping a tiered rate structure. Cotati’s current tiered rate structure would need to be converted to a single tier or re-evaluated as a result of an April 2015 San Juan Capistrano appellate court decision.

“I’m satisfied with the need and timing for this study,” Councilman Mark Landman said. “I’m satisfied with the selection, given the market seems to be small and not with a lot of price differentials. They’ve got good referrals and do local work. The only question is it worth paying $8,800 extra for the two options? Both options tend to do with the potential for the supply of water being variable.”

 Councilwoman Wendy Skillman at first was leery about the tier group because of a previous lawsuit but the need for more information won out for her.

 “At first I was looking with some hesitance at tier group because of the lawsuit,” Wendy Skillman. “But we’re not approving rate changes, we’re just looking into the study and I think it’s good to invest in getting all the information that we can.”

The Reed Group also will evaluate applicability of automatic annual water and wastewater rate adjustments. In accordance with statutory requirements, these mechanisms can be adopted for up to five years. 

The Reed Group eliminated residential tiered water rates and replaced them with a uniform water rate structure in the cities of Cloverdale and Roseville, the San Juan Water District, Carmichael Water District and Amador Water Agency. Cities that have maintained updated tiered rates include the Town of Windsor, Santa Rosa, Rohnert Park and Lodi.