EBMUD proposes $1.8 billion budget for next two years

The tough financial lessons learned six years ago after the last drought ended are weaved throughout the $1.8 billion budget that East Bay Municipal Utility District’s General Manager Alexander Coate will present on Tuesday, March 24, to the Board of Directors. The budget funds critical capital projects, accounts for increased water supply costs because of drought, and balances slimmed down water sales.

Under the first year of this proposal, the average EBMUD household that uses about 7,500 gallons per month would see an increase in their monthly water charge of $3.57, increasing their bill from $48.60 to $52.17 each month. That is about a 7 percent increase to most residential water bills for fiscal year 2016. About two-thirds of EBMUD’s single family residential customers use less than the average amount.

The highest one percent of water using households, those using about 45,000 gallons per month, would see an increase in their monthly water charge of $47.69, increasing their bill from $264.68 to $312.37 each month. That is about an 18 percent increase for those customers in fiscal year 2016.

The wide range in water rate increases in fiscal year 2016 stems from the findings of a cost of service study the district conducted last year. State law requires rates be based on the cost of service. The study recommended adjustments for rates in all customer classes and all tier levels to match customer costs with services received.

A 7 percent rate increase for all water customers also is proposed for fiscal year 2017.

New this year to the budget are proposed temporary drought surcharges of up to 25 percent. The drought surcharges of 8, 20 or 25 percent would apply to all customers only during a declared stage 2, 3 or 4 drought and only on the volume of water they use. Drought surcharges primarily would pay for water supplies via EBMUD’s Freeport facility on the Sacramento River.

Capital spending leads priorities

The two-year capital improvement cash flow for both water and wastewater is $536 million, a 20 percent increase over the prior two-year budget as the district plans to push forward with critical replacement and rehab projects on key segments of the $14.4 billion infrastructure assets it manages and operates across seven counties.

“This drought is happening at the same time we must tackle critical pipeline projects. Operations and maintenance can’t stop,” said Coate. “On the contrary, we have to accelerate our investments. This budget takes the financial lessons we learned after the last drought when we made deep cuts and ensures we have both enough supply for customers and enough resources to meet the challenge of delivering water via aging infrastructure.”

The largest capital spending for water in the proposed budget include funds to

  • Replace 26-30 miles of distribution pipes ($69 million)
  • Rehab 3-4 steel reservoirs ($31 million)
  • Make upgrades at 6 water treatment plants ($28 million)
  • Make safety improvements at dams and reservoir towers ($17 million)
  • Upgrade information technology ($7 million)
  • Launch phase 1 of relining the Mokelumne Aqueducts ($4 million)

“We can’t wait for this drought to end to move forward on repairing aqueducts and replacing pipelines. Our pipes are the East Bay’s lifelines. Our reservoirs are our fire protection. Our dams are our flood control,” said Coate.

The proposed budget authorizes 39 new staff positions, mostly for pipeline replacement crews and temporary drought-related customer service and water conservation positions.

Revenue reality shapes projections

Water usage by all EBMUD customers combined has been on a downward trend for nearly a decade while maintenance costs have increased as more segments of infrastructure show their age. Since 2007, water use has dropped 25 percent.

Customers heeded the call for voluntary conservation during the drought and cut back their water use 12 percent in 2014 compared to their 2013 use. The proposed budget reflects this reduced consumption. Past droughts indicate water usage recovers very slowly after mandatory cutbacks end because customer behavior changes and household efficiency upgrades often create permanent water use reductions.

For the previous two budget periods the district faced financial challenges brought on by the 2008 drought and the Great Recession when water sales, hydropower sales, interest income and other revenue declined. From 2010 to 2013, the district reduced and deferred nearly $200 million in capital projects and operating expenses, implemented a hiring freeze and a salary freeze, and paused less urgent maintenance work. These actions increased the backlog of needed repairs.

“Deferring capital projects doesn’t stop the pipes from aging. At some point waiting becomes more expensive than replacing. We’re at that point,” said Coate.

Temporary drought surcharges may be needed

The proposed fiscal year 2016 and 2017 budget also includes a series of drought surcharges of up to 25 percent that can be implemented to recover the costs of additional water supplies and temporary staff who will support water conservation and enforce watering restrictions.

Depending on the severity of the district’s water supply projections, due after the announcement of the final state snow survey on April 1, the Board of Directors may declare a stage 2, 3 or 4 drought. Surcharges, if approved, could take effect at the start of the next fiscal year and would apply to water customers’ flow charge only, not any fixed charges. The surcharge would not apply to recycled water customers.

If a stage 4 drought is declared, the average water customer would see an increase on their monthly bill of $11.65, increasing it from $48.60 to $60.25.

The highest one percent of water using residential customers would see a monthly increase of $118.91, increasing their bill from $264.68 to $383.59. In addition, this customer would be subject to proposed excessive use penalties.

The surcharges along with additional water supply purchases, mandatory restrictions, increased cutbacks and excessive use penalties make up the district’s new staged system of drought response developed last summer. This staged system of drought response, EBMUD’s first, was initially presented at a series of public meetings last fall and approved by the Board of Directors on December 9, 2014. The drought surcharges must still be approved by the board before taking effect on July 1.

Drought drops wastewater revenue

EBMUD provides wastewater treatment to 650,000 customers in Alameda, Albany, Berkeley, El Cerrito, Emeryville, Kensington, Oakland, Piedmont and part of Richmond. The total proposed wastewater budget is $169.7 million in fiscal year 2016 and $137.2 million in fiscal year 2017.

In fiscal year 2016, the average EBMUD residential wastewater customer who flushes or drains about 4,500 gallons per month would see a decrease in their monthly wastewater bill of $0.24, lowering their bill from $19.25 to $19.01 each month, about a 1.3 percent decrease. Most EBMUD’s single family residential customers flush or drain less than the average amount. The residential wastewater customer rate decrease will be offset by a rate increase for non-residential customer classes.

Aging infrastructure is also a challenge for the EBMUD wastewater system. Major capital spending is planned to continue in this budget period as the district continues rehabilitation of two major interceptor pipelines on 3rd Street and Wood Street in Oakland, implements odor control measures at its West Oakland treatment plant and begins planning improvements to the regional collection system as agreed to under last year’s U.S. Environmental Protection Agency consent decree.

Process culminates in June

A series of public board workshops held over the past year form the foundation of the budget. The workshops examined short- and long-term impacts of operating and capital needs, financial policies, fixed versus variable costs and the effects of the ongoing drought.

The EBMUD Board of Directors is scheduled to vote on the fiscal year 2016-2017 budget at a public hearing on June 9, 2015. A Proposition 218 notice will be mailed to ratepayers this spring. The budget and rates, if approved, will take effect July 1, 2015.