Posted inGovernment

Are there Risks in Rejecting the Proposed Utility Rate Increases?

Over the last six weeks, CCSD Board members have provided specific information articles regarding the proposed Proposition 218 rate increases.  That information has described the age, condition, maintenance, and replacement needs for our Water and Wastewater (Sewer) Utilities. 

     CCSD’s Utilities must be financially self-supporting enterprises by law.  Service charges are the main source of revenue for each Utility and specific to that Utility.  Water cannot pay for Sewer, and Sewer cannot pay for Water.  Being familiar with the District operating structure and how utility rates are legally controlled provides insight to Board actions.  It is also important for Cambrians to understand operational impacts to District Utilities if the proposed rates are rejected.  In other words, “What do we risk”?  A simple response is the potential of Utility system failures and significant regulatory agency fines.

     Our hard-working and capable Utilities staff maintain these aged infrastructures daily.  They are the front line in recognizing the current risks and impacts of a failed system, while continuing to provide service.  Failure does not mean all components currently needing attention or replacement have broken down.  A loss in one area of Utility processes can easily lead to other impacts. 

     Consider the wide-ranging impacts of a major sewage line or pump station failure.  What effects would there be to community health by loss of sanitary access in our homes or businesses.  What risks would there be for environmental impact?   Or consider the impact to our firefighting capability if an area of the water distribution system loses pressure due to a complete lift pump failure?  Because of age, the ability to address equipment failures has become more difficult.  Supply chain challenges for parts and equipment present added risk for timely replacement materials.  Many of our infrastructure components are so aged and outdated that replacement parts are no longer available, adding another complexity.

     Wastewater (Sewer) System Impact.  This is the primary area of risk for the District.  Rate increases would provide the yearly debt service revenue to support the $12 million of critical repair, replacement, and enhancement projects.  These identified projects were determined through a focused assessment of Cambria’s Wastewater Treatment plant and auxiliary systems over the past several years.  The assessment also concluded that, if these requirements are ignored, the Sewer System is and will remain in a vulnerable condition and will be at risk of operational failure.  

     Without the proposed rate increase, the District will be unable to obtain needed funding.  The District could not undertake the necessary projects to prevent the risk of operational failure.  If there were a significant failure which CCSD could not address financially, the County would step in and assume authority for the District wastewater services.  If the experience of Los Osos Community Service District is an indication, any loans the County would obtain to address the repair and replacement needs of the Cambria Wastewater Plant would be sustained by our community through property tax assessments.  In addition, the Utility’s revenue needs would be evaluated and adjusted to meet operational and maintenance needs.   Rate increases would result.

     Water System Impact.  Our Water Facility is in a similar state of age and continues to require ongoing rehabilitation and replacements. The highest impact for failure and cost risk is within the 66.7 miles of underground water main pipelines from the 1960s and 1970s.  Cambria’s rollercoaster topography contributes to the constant repairs and replacements due to age, leaks/breaks, and root intrusion.  It is common that line replacement or repair has additional cost in road repair. The recent loss of our community’s main water supply line from the San Simeon wells is a case in point for age failure.  It also highlighted that infrastructure failures are expensive.  The emergency fix of that line cost $400,000 with the outstanding permanent repair expected to be upwards of $2 million.  

     Water’s capital improvement needs lie in the supporting infrastructure, particularly in potential failure of booster stations which lift water to our storage tanks through eight pressure zones.  The assessment also identified replacement of well pumps at the San Simeon and Santa Rosa well sites.  In addition to facility and infrastructure needs, there is a much-needed Water Meter Replacement Program. The meters are past their life cycle and have been failing.  When a meter fails, data must be read manually. Failing meters also may be sporadic and recording inaccurately.

     The District has been truly fortunate to have Water and Wastewater Utilities staffed by knowledgeable and proficient professionals.  They have been able to creatively and effectively work through equipment issues and failures for several years.  We need to reduce failure risk and not be complacent in thinking things can continue to be addressed with short term fixes and repairs.  As a community, we need to take responsible, proactive steps to fund the needed repairs and equipment upgrades.

Posted inGovernment

Understanding Inflationary Rate Adjustments and Why They are Being Proposed

Why are inflationary rate adjustments being requested?  Inflation is always with us.  Some time periods of increase are higher than others.  Inflation is a rise in the cost of goods and services. When the general price level rises, each unit of currency buys fewer goods and services.  The effect is a reduction in the purchasing power of money.

     Our District, like all other special districts that provide water and/or sewer services, can only obtain the monies to provide and maintain those services through the rates charged to the users of the services.  The current Proposition 218 rate analysis has included estimated inflation as part of the overall rate assessment and development.  That will address the effect of inflation for the next three years.

     Where the potential impact of not adjusting for inflation comes into the picture are time periods after the proposed rate increases.  For every year there is no inflationary rate increase, the impact of inflation will actually reduce the value of the yearly revenue of those rates generated for Years 1, 2, and 3.  The District would be in the cycle of two steps forward, one step back in every subsequent year.   To address this impact, this Proposition 218 process, as expressly permitted by Government Code Section 53756, is also proposing an inflationary rate increase for Water, Water Reclamation Facility (WRF) and Sewer for Years 4 and 5.  Note that this inflationary rate increase in Years 4 and 5 is the only increase being proposed for the WRF. 

      What Does an Inflationary Pass-Through Mean?  Based on California Government Code Section 53756, An agency providing water, wastewater, sewer, or refuse collection service may adopt a schedule of fees or charges authorizing automatic adjustments that pass-through increases in wholesale charges for water, sewage treatment, or wastewater treatment or adjustments for inflation.  CCSD is proposing to authorize future annual inflationary Water, WRF, and Sewer rate adjustments for an additional two years after the three years of proposed rate increases.

     Most people are used to hearing the terms “Inflation” and “Consumer Price Index (CPI)” but are not familiar with the difference between the two.  The Consumer Price Index is a measure of a segment of inflation, as experienced by people in their day-to-day life.  It is a measure related to the consumer’s daily expenses (the average price by which a consumer buys the household things).  CPI is an index which is part of inflation just like GDP, cost-of-living indices, producer price indices (PPIs), commodity price indices and core price indices.

     Government Code Section 53756(b) provides that “The schedule of fees or charges may include a schedule of adjustments, including a clearly defined formula for adjusting for inflation.”  In the proposed rates, the future rate adjustments would be subject to a maximum annual increase based on the percentage of change in the CPI for California from the most recent December-to-December period, at time of implementation.  The important part of this statement to understand is “percentage of change in the Consumer Price Index.”   The Inflationary Rate Adjustment would not be the current inflation rate.  It would be the difference between the prior year’s CPI (averaged over 12 months), and the most recently completed calendar year’s CPI (average over 12 months).  The difference between the two CPIs represents the “percentage of change” for the most recent December-December period.

     The currently proposed Proposition 218 Inflationary Rate Adjustments for Years 4 and 5 would go into effect on July 1 of 2025 and then on July 1 of 2026.  An adjustment implemented on July 1 of 2025 would be based on the percent change of the CPI from its annualized position at December of 2023 to its annualized position at December of 2024.

     Deferral of a future inflationary rate adjustment can be made up in a subsequent year.   If the adjustment for July 1 of 2025 is deferred for a year, it can be added to the adjustment for July 1 of 2026.  The proposed inflationary rate adjustments will be subject to future review and approval by the Board of Directors.

     Please note that the “Inflationary Rate Adjustments” in the Proposition 218 Notification were not presented as part of the proposed three-year rate adjustment for Water and Sewer rates.  The Proposed Inflationary Rate Adjustments (Years 4 and 5) were identified as a singular proposed action for Water, Sewer and the Water Reclamation Facility, on the “PROP 218 WRITTEN PROTEST FORM.”