Consultant Suggest Tripling Dixon Water Rates

At the Special City Council meeting this past Tuesday, September 18, consultants (known as Raftelis) hired by the city to review the financial and physical status of the city-owned water system presented options that could as much as triple water rates.
About half of Dixon is in the city system – the other half being owned by California Water Service (CalWater) – which has announced plans to raise their rates by 40 percent. To do so, CalWater must obtain approval from the state Utilities Commission.
According to the Raftelis study, the city system has been losing money per gallon pumped since 2014 – when both Cost of Operations and Maintenance (O&M) and Capital Improvement (CIP) are combined. That is despite a reduction in the number of gallons produced and increasing revenues.
The report projects a little over 12% increase in water sold from 2018 to 2017. O&M expenses are projected to increase by less than 10% – including new development.
But CIP projections show major increased expenditures – from $165,000 in Fiscal Year 2018 to a high of $11,330,000 in FY 2022. The total CIP – which includes Repair and Replacement – is projected to be #37,900,000 from 2018 through 2027.
More than half of that total is expected to be spent in FYs 2020, 2021 and 2022 – when three wells will be replaced at a total cost for the wells of $8.8 million. The wells are the “School Well” which was drilled in 1989; the “Watson Ranch Well” (1978) and the “Industrial Well” (1977).
Also included in the nine year CIP are water meter replacement; water tank seismic upgrades, a service line replacements in the Watson ranch subdivision; and up to $500,000 per site for the three wells being replaced.
But such capital expenses are not the only rational for a rate increase. The Raftelis proposal include creating large reserve funds – a Repair and Replacement (R&R) fund equal to one-hundred percent of the average FIVE-YEAR R&R expenditures (not including well replacements). It also included a reserve fund equal to twenty-five percent of the annual O&M expenditures.
To accomplish those goals Raftelis proposed two scenarios. The first is a “PayGo” (Pay as you Go) plan with a tripling of water rates in April 2019 – and a future 50% decrease from that high rate five years later, in April 2024. That plan included no funding via debt for CIP. By 2027, that would produce an “Enterprise Balance” for the water system of about $1,500,000.
A second option is a 205% rate increase in April 2019, and a $7 million dollar debt issued in 2021. That plan would result in a reserve balance of about $2,500.000.
A chart from Reftalis shows risk levels for the infrastructure in various parts of the city. The most at risk are the “Industrial” and the “School Well” areas, with over half of the assets at risk. The lowest is “Park Lane” with less than 30% at risk, followed by Watson ranch with 40% risk, “Fitszgerald at an median risk level, and Valley Glen with a total risk level of about 60%.
CalWater’s and city system’s infrastructure were financed dramatically different. CalWater is an investor owned utility. The entire infrastructure was build using investors’ funds and corporate debt. CalWater is allowed a specific, and low, rate of return on the investments – with the state Utilities Commission’s oversight.
The city system was built by developers, who included those infrastructure costs in the mortgages of homeowners and land purchasers. Anyone paying mortgages today in that area is still paying off the infrastructure. That system was operated by a Joint Powers Agency (JPA) with the Solano Irrigation District (SID), despite not making any direct investment.
After SID built up millions in reserves and spent most of those funds on a new building, the Dixon City Council voted to terminate the JPA and take ownership and responsibility for the system. If the city sells the system before ten years for that change, half of the proceeds must go to SID.
Even worse for city system rate payers – most are still paying an annual assessment to SID, despite receiving no benefits from those assessments. If the city system received those funds, it could build up the reserves without a rate increase. But either an accommodation between the city and SID, or legal action against SID, would be necessary to make that change.
The Raftellis study at this point is only under study – but the City Council will fairly soon been making a decision on the rates.

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