A utility rate study is an evaluation of the costs incurred to provide utility services to customers and an analysis of the customer rates to ensure they are fair and reasonable. 

A utility rate study is commonly performed by an independent financial consultant hired by the utility provider, in this case, by the City of West Sacramento. Factors that may be considered in a utility rate study include the cost of providing service, the revenue needed to cover those costs, the number of customers, the usage patterns of customers, and the regulatory environment in which the utility provider operates.

Utility rate studies are typically conducted every three to five years, depending on the size and complexity of the utility provider and the regulatory environment in which it operates.

The results of a utility rate study are used to determine whether rates should be adjusted, and if so, by how much. The results may also be used to develop rate structures that address policy goals, such as environmental and fiscal stewardship. 

A cost-of-service analysis is a study that evaluates the costs incurred by a utility provider to provide services to its customers and determines the appropriate rates to be charged to ensure that those costs are recovered in a fair and reasonable manner.

A rate design is the structure of rates charged to customers, including the types of charges (such as fixed fees or variable charges), and the levels of those charges.

The City’s utilities are funded in large part by the rates customers pay via Enterprise Funds. Enterprise Funds are separate from the City’s General Fund. Customer payments ensure the City’s ability to deliver high-quality, reliable water, wastewater (sewer), and solid waste (trash) services in a manner that values our environment and community, and sustains the resources entrusted to our care. The City is committed to good governance, fiscal accountability and transparency, with systems and policies in place to earn the trust of our ratepayers and constituents. 

No. By law, we cannot charge customers more than it costs to provide the service. Each utility is self-funded, so its revenues must equal its expenditures. Our system is owned by our customers and governed by the City Council; we do not have shareholders or pay dividends.

Rates studies are conducted as an industry best practice to ensure that a utility’s financial health is maintained and that the City is setting a course toward meeting future financial obligations. The industry standard is to perform comprehensive rate studies every three to five years. The City’s last rate study was in 2017.

Rates must cover the cost of service and maintain prudent reserves in case of an emergency, such as an earthquake or wildfire, that could damage major critical infrastructure.

With any new rate adjustments, the City will be able to budget and fund the annual level of capital reinvestment needed to upgrade obsolete equipment and replace infrastructure at the end of service life, and provide financially and operationally sustainable water, sewer, and trash services.

California’s new organic waste regulations went into effect on January 1, 2022, and added additional cost pressures to solid waste and disposal rates for nearly every city and county in the state. Costs associated with implementation and updating and adding infrastructure are some of the factors for potential solid waste rate increases. 

Revenues from the current rates and fee structures are not fiscally sustainable. Rates must keep up with costs to operate the systems. The City is conducting these much-needed water, sewer, and trash rates studies to develop a new 5-year rate structure to financially support the utilities’ current and future needs. Utility services are experiencing the same global impacts of inflation. Rates must keep up with costs to operate each system, and rates have not been updated for the past two fiscal years. The City’s rates are based upon the actual costs of providing water, sewer, and trash services, nothing more. We raise rates when necessary to cover operating and capital costs to maintain the systems. 

Proposed rates are determined following evaluation and analysis of cost escalations related to operation and maintenance, costs to purchase water, water and wastewater treatment, capital projects’ costs, general inflation, and material cost increases. California’s Proposition 218 requires local municipalities to follow certain procedures when proposing a rate adjustment to services such as water, sewer, and trash services. A property owner has an opportunity to protest the proposed rate increases if they feel they are unwarranted. Under Proposition 218, ratepayers will receive a public notice detailing the proposed rate adjustment, the protest process, and the City Council Public Hearing date. Customers have 45 days to protest rate adjustments through a written process. In the Public Hearing, the City Council will review customer protests and consider approving or denying rate adjustments. Should the City receive a majority protest from its customers, rate adjustments will not be implemented.

No, Enterprise Funds can only be used for the specific Enterprise Fund’s projects.

If rates are not raised, the City would have to make hard choices regarding the levels of service provided to the community.

The City hired a consulting firm with expertise in utility rate studies in California. Their scope of work includes developing long-range financial plans for water, wastewater, and solid waste services and assisting with the California Proposition 218 process and public hearing for rate adoption. The rates studies consist of a series of steps involving data evaluation, performing technical analyses, deriving customer rates, and understanding customer impacts of any modifications. Once rate proposals are determined, each complete study is documented in a Study Report to serve as part of the City’s administrative record.

In California, all parcels connected to a utility system must be given notice of any rate changes with the ability to protest the proposed rates. The notice details the proposed rates, the basis for calculating the proposed rates, the reason for the proposed rate increase, the details of the public hearing, and the ratepayer’s or property owner’s right to protest. After a protest period of no less than 45 days, the City Council can conduct a Public Hearing. Absent a majority protest to the rate proposal, the City Council may choose to adopt the rates as noticed.

The City is committed to using industry best practices to ensure we thoughtfully plan for the future. Utility rates are an investment in our infrastructure today to secure our systems for the future. Revenues derived from water, sewer, and trash rates ensure the continuity of operations and reliable service delivery to nearly 55,000 people. Rates pay for the expenses to provide utility services.