West County Wastewater pivots to ‘pay-as-you-go’ capital funding model with steep rate hikes

West County Wastewater pivots to ‘pay-as-you-go’ capital funding model with steep rate hikesThe California utility is set to pursue double-digit annual rate increases over the next five years to fund a $63 million capital program, rejecting a debt-financed alternative to prioritize long-term reserve health.

The Board of Directors informally directed staff to proceed with a "Pay-As-You-Go" rate plan involving 12% annual increases for five years.

The chosen scenario avoids a projected $50.7 million bond issuance in FY 2029, citing existing debt obligations of $162 million.

Capital needs totaling over $63 million through 2031 include the Facilities Program, Gravity Sewer Program, and the North Richmond Collaborative Shoreline project.

The new rates would see single-family residential charges rise from $815 annually to $1,435 by the end of the five-year period.

Proposition 218 notices are scheduled to be mailed in March 2026, with a public hearing set for May 2026.

West County Wastewater (WCW) is poised to implement a five-year rate plan characterized by 12% annual increases to fund infrastructure improvements through cash reserves rather than additional borrowing. During a December 17 meeting, the Board of Directors reviewed two financial scenarios presented by staff and consultants Bartle Wells Associates for the Fiscal Years 2027–2031 period, ultimately favoring a "Pay-As-You-Go" approach over a debt-financing model. The District, which serves approximately 34,000 residential and 900 commercial connections in California, is facing a five-year capital spending plan exceeding $63 million. Key drivers include aging infrastructure, regulatory compliance, and specific major projects such as the Facilities Program, Gravity Sewer Program, and the North Richmond Collaborative Shoreline (formerly the Living Levee), which has a projected cost of $5 million in FY 2029. Financial Analyst Abeni Allen presented the Board with two scenarios to meet these needs alongside rising operating costs and pension liabilities. Scenario 1, the "Pay-As-You-Go" option, proposed 12% annual rate increases for the first five years, followed by inflationary increases of approximately 3.5% in years six through ten. Scenario 2 offered a debt-based alternative, requiring an 8% annual increase for the first five years supplemented by a $50.7 million bond issuance in FY 2029. However, the debt scenario would require continued 8% increases in the outer years (years six through ten) to service the new debt. Deputy General Manager Justin Lovell advocated for the Pay-As-You-Go model, noting that it creates "more stability in the capital program." He emphasized that while debt provides an immediate lump sum, the Pay-As-You-Go model ensures the utility reaches revenue sufficiency by year five, allowing for lower inflationary adjustments thereafter. Lovell also highlighted the District's existing debt load—approximately $162 million remaining from State Revolving Fund (SRF) loans and 2021 Revenue Bonds—as a factor in protecting the agency's credit ratings. With the District currently holding an 'AA-' rating from S&P Global Ratings with a negative outlook, and debt repayments extending through 2041, maintaining strong debt service coverage ratios became a priority to prevent further credit erosion. "If we do not continue investing in replacing our infrastructure, we're running [the] risk of having additional sewer overflows," Lovell told the Board, adding that deferring maintenance could lead to regulatory liability under the National Pollutant Discharge Elimination System (NPDES) permit. The Board’s Finance & Administration Committee had previously reviewed the options and strongly recommended avoiding further leverage. "We did not believe that the district should take on more debt because of the amount of debt we took on with the Clean and Green project," said Vice President Cheryl Sudduth, referring to the District's recent major energy and solids handling initiative. The committee prioritized stabilizing the District's leverage profile over immediate rate relief, aiming to protect operating reserves which currently cover approximately six months of cash flow. Under the proposed Pay-As-You-Go plan, the fixed annual sewer service charge for a single-family residence would rise from the current $815 to $912 in the first year, eventually reaching $1,435 by the end of the five-year period. Multi-family units would see proportional increases. Following the Board's consensus on the Pay-As-You-Go scenario, staff will prepare the necessary Proposition 218 notices. The Board is expected to formally authorize the notices in late February or early March 2026, with a public hearing scheduled for May 2026 and new rates taking effect July 1, 2026.