Item 08 - Water and Sewer Rate Adjustments

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EXECUTIVE SUMMARY 1.1 Background The City of Santa Ana is one of the oldest cities in Orange County and was incorporated in 1886. Governed by a seven -member City Council, the City Public Works Agency (PWA) provides the core services of potable water production and distribution, recycled water distribution, and wastewater collection in its service area. The City encompasses an area of approximately 27.5 square miles and serves a population of 311,000 through roughly 47,100 water meters connected to the City's water system, which includes fireline and recycled water meters. Out of the total water meters, there are around 45,500 potable water meters. There are also approximately 42,000 sewer service connections. The Water Utility consists of 20 active groundwater wells, 8 reservoirs, 7 water connections to Metropolitan Water District (MWD), 16 interconnections with neighboring water utilities, and 478 miles of water mains. The Sewer Enterprise consists of approximately 390 miles of sanitary sewer lines, 9,000 manholes, 48,500 sewer laterals, and 2 sewer lift stations. All sewage is conveyed to the Orange County Sanitation District (OCSD) for treatment. The City last performed a Cost of Service and Rate study in 2019. On November 19, 2019, the City Council adopted a 5-year rate plan for the City's water and sewer services. Since adopting the 2019 rate plan, PWA has completed several major infrastructure projects, including well rehabilitation, the addition of new wells, and the implementation of a smart water meter program. The last adopted rate adjustment took effect on July 1, 2023. Due to a number of factors, water and sewer rates have not been adjusted in nearly three years. During this same time period, the cost for delivering Santa Ana's award -winning drinking water and maintaining its sewer systems have increased significantly. In the past two years, both the Metropolitan Water Agency and the Orange County Water District, the agencies that supply and manage the region's imported water and groundwater basin have raised their rates by 15% and 22.1 % respectively. Revenues for the water and sewer enterprises are not keeping pace with increasing operating costs. As a result, existing revenues do not provide adequate funding to support planned capital improvements or to build and maintain reserve balances at levels recommended by the consultant and consistent with generally accepted industry practices. Over time, this limits the utilities' capacity to reinvest in aging infrastructure or to maintain reserve and debt coverage benchmarks typically reviewed in ongoing evaluations by S&P Global Ratings, which can influence future borrowing costs. In more recent years, operating expenses have continued to increase while revenues have remained relatively unchanged, City of Santa Ana - 2026 Water and Sewer Rate Study 1