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Council recoils from water rate hike shock
City leaders nearly choked on a proposed series of rate increases for water and sewer rates in light of future needs and existing revenue deficits during Thursday's special study session.

Members of the Ceres City Council are leaning toward the concept of providing for Ceres' future water needs by blending well water with river water filtered through a future regional surface water plant. But the council is scrutinizing the timing of rate hikes designed to make the plant a financial reality.

Rates also need to be increased to implement a citywide metering program in 2011.

A consultant hired by the city noted that Ceres water rates need to jump from the current $15.30 per month to $64.30 by the 2013. If Ceres needs its ultimate delivery of 11.5 million gallons per day from the plant, rates need to climb to $82.30 by 2012.

Realizing that most Cereans' budgets are not in the best of shape with the shaky economy, councilmen ordered the consultant to do more number-crunching.

"In these economic conditions, I think we need to be more judicious on what we do and when we do it," said Mayor Anthony Cannella.

The council asked the consultant to come back at the Nov. 5 study session to look at three issues:

• What will it take to make up the current shortfall in sewer and water revenues;

• What incremental increases need to be made now for the city to build capital necessary to build a modern sewer and water system.

• What "wish list" things need to be done now.

The consultant suggests that the increases come incrementally over a five-year period to minimize shock to Cereans' household budgets.

West Yost Associates noted that the city is not presently charging enough to cover costs of doing business in the water divisions. Rates aren't adequate because of the expenses of installing water meters, rehabilitating old wells, development of new wells and treatment of ground water.

Water rates will have to be increased 65 percent and sewer rates by 41 percent in order to have revenues match this year's budgeted expenses. The current deficits combined are between $600,000 and $1 million per year.

Consultant ECO:Logic suggests that the city needs to raise sewer rates because the cities of Modesto and Turlock, which provide some services to Ceres, have raised their rates. Rates also need to factor in the costs of capital projects to replace aging equipment and facilities.

Sewer rates would need to go from $22.50 per month to $62.13 per month by 2012 in north Ceres and $49.75 per month in other parts of Ceres. The rates would be higher in north Ceres because wastewater is processed at the city of Modesto plant.

By far the most significant impact to water rates would be triggered by Ceres' participation in the regional surface water plant being planned by the Turlock Irrigation District. The plant would guarantee that Ceres would have a reliable source of good, clean drinking water. Currently the city relies solely on groundwater, which is not stable in terms of quality and quantity, say city officials.

"I believe that surface water is critical to the city of Ceres," said Mayor Cannella. "We're having a very difficult time finding well water. It's very expensive. Any time we build a well, a $400,000 well now costs $1.5 million because you have to do wellhead treatment. It's very expensive and it's expensive to operate."

The TID is planning to build the plant near Fox Grove Fishing Access on the Tuolumne River northeast of Hughson and will be sized to supply water to Ceres, Hughson, Modesto and Turlock. The plant would be financed upfront by TID with the debt and water costs covered by the participating cities.

"Although we're all committed to (the project) the reality is we don't have hard costs from TID at this point," said Cannella. "So potentially we want to hold off on increasing the rates to include that until we have a better idea of what the costs may actually be."

TID officials estimate that the cost of supplying Ceres with 6 million gallons per day will be $49 million, or $4.5 million per year over a 27-year period. If Ceres needs its maximum allotment of 11.5 MGD, the cost would be $86.3 million with annual payments of $7.4 million for 27 years. Cannella, however, is not confident in TID's numbers.

Consultants recommend that the city begin raising rates before the plant goes out to bid in the spring of 2009 and the plant goes on line in 2012.

In response to state mandates for metering, Cannella said the city is "leaning toward" a citywide metering program. Rates would have to be approved under a Proposition 218 protest hearing process.

"It would be difficult to have a Prop. 218 vote if half the city is being metered and half the city is not being metered," said Cannella.

Councilmembers charged the consultant with finding out about the status of the bond market since the city hopes to issue $10 million in municipal bonds to fund capital improvements and retrofit all water meters to an automated meter-reading program.

"I've heard of other cities," said the mayor, "that have tried to sell bonds for various infrastructure in the last couple of weeks and they've gotten zero offers. So we asked (the consultants) to go back and verify that there is a bond market and there will be one in the next foreseeable future."