Government Performance and Finance Committee - Regular Meeting

Good morning, can you guys hear us?

I'm here.

Okay.

And you can hear us fine?

We didn't hear you, Sedolgi. Can you hear me now? Yep, there we go. Okay. We're about to go live. Ready? Okay. I'd like to call to order the Government Performance and Finance Committee meeting of August 18th, 2026. Clerk, will you please call the roll?

Vice Chair Bushnell?

Present.

Council Member Rumba? Absent. Council Member Sedalge?

Here.

And Chair Hines?

Here. All right. Clerk, has anyone signed up to speak virtually or in person?

To request to speak during public comment for items on the agenda, please sign up in the front of the room if you have pencil on it. If you are speaking virtually, please press the raise hand button near the bottom of the Zoom window or star red on your phone. Your name for the last part of your phone number will be called out when the district starts speaking.

All right. Do we have anybody online or in person?

Neither.

Give it one more second. Raise your hand if you're online and wish to speak. I'm not seeing the participant list.

Yeah, there's nobody on there. Okay.

Therefore, I will close public comments and we'll take it on to our briefing items. Our first briefing item is Tacoma Public Utilities 2027-2028 Preliminary Budget and Rates Update. Please join me at the table here to begin the presentation. And this will be an informational briefing only for those public that are listening later. Now I have the power. The power of the pen, the power of the gasoline.

Well, good morning, Vice Chair Bushnell and members of Government Performance and Finance Committee. My name is Alex Yoon, Utility Deputy Director for Administration at TPU. Thank you very much for having us here to share with you TPU's draft budget and rate. I just put it there also that this presentation is information only and there's no decision requested at this time. Next slide. Just quickly going over the agenda, we'll be covering some TPU's time, budget and rate timeline, as well as really rate making principles and the process. We'll also want to highlight some of the common expense drivers that we have to incorporate in our 2728 budget process. Another one is really highlighting one of the ways that we are trying to mitigate rate increase within this biennium, so we wanted to share that result. And then we'll have Tacoma Power Water and Rail present.

Council Member Hines or Chair Hines, your hand just came up. Are you able to hear okay?

Well, it sounds better now, but for a few moments there, it sounded like someone was either scratching the microphone or moving the microphone, and the sound quality was pretty poor. It sounds better now, so if somebody moved anything in the room, that helped.

I don't think so, but if something does pop up, feel free to interrupt so we can make sure that you can hear okay. Thank you. Please proceed.

All right. We have Tacoma Power, Water, and Rail present their draft budget and rate as part of our last presentation. Next slide, please. Just sharing with you our timeline in terms of our budget development, we actually started with our budget and rate development last year with a full day workshop with our board going over the details of our budget process rate making process industry, emerging needs risks and challenges. as well as really in-depth analysis of our budget and actuals. After today's presentation, TPU's community engagement or community outreach team will be beginning their community engagement efforts. in order to prepare for the public hearing that will be coming in October of board meetings. And this will be where our board will be deciding on whether to advance our TPU budget and rate to full council for their review and approval and adoption in November. Next slide, please. I'm not going to go over in detail or beat off all of the details, but these are the RAID principles that we incorporate, and this is something that environmental services also incorporate in terms of our legal aspects, industry standards, and City of Tacoma principles. Next slide. This is really a high level of our rate making process. Environmental service also shares this process as well. Wanted to mention that TPU rates just as well as environmental services rates are really based on cost recovery model. And we really look at long-term impacts on what we decide on our current and our future budget and rate proposals. We start with the budget process, really looking at our operating and capital budgets. We understood early on that there are many factors increasing our budget and rate, and concern with the rate trajectory. So TPU director kicked off the budget and rate development process with Start, Step, Continue initiative early on this year. really to bend the curve on TPU's rate trajectory, which I'll talk a little bit more in details later on. So there are a lot of discussions and negotiations at each utility to really determine what is the necessary level of operating and maintenance budget and also capital projects. Once these are determined, then we really explore the ways to fund all these budgets, both operating and capitals. We really explore in terms of looking at our current revenue and assessing them, as well as whether we tap into reserves. Another really big item for our financing is around bond issuance. So looking at those, we also have opportunities such as low or zero interest rate loans. And we also look at those as a part of our revenue opportunities. We also do cost of service analysis, which is really looking at various customer classes and align our expenditure allocation to support those customer classes and to determine revenue needs. So with all these information put together and we really do finalize our rate structures, which does include our system average rate and customer class-based rates. So again, this is really high level process, but please be assured that a lot of rigor and time and effort spent by our skilled staff to really incorporate rate making principles and determining our budgeted rate structure. Next slide, please. I'm really talking fast. Um, we wanted to really highlight here. What are some of the common expense drivers that we have to incorporate it into our 2720 budget? And I can be assured that, um, that these common expense drivers are not unique to TPU, but really, um, throughout environmental services as well as other city departments. Very first item there is really labor negotiated wages increase. So between 2024 and 2025, TPU had multiple collective bargaining contracts completed and they were really incorporated into our budget, definitely impacting our wages expenditures. Next item around benefit increase, I think most of you have heard already that there's a huge spike in our employee benefits, particularly on the medical and health benefits there. So that definitely had a significant role in terms of our overall budget increase. Retail sales tax, this is something that State Department of Revenue had announced related to imposing retail sales tax on service contracts. And this really did have another significant impact in terms of like, I think it's 10.23% additional costs related with our service contract expenditures. Next item is around removal of gross earning tax exemption. So this is something that have been incorporated into 2025-26 budget. but TPU had not had time to really change the impacts to our 2025-26 budget. So when we have incorporated that and compare budget to budget, there have been some significant increase there as well. And then lastly, but not least, is the inflation. So definitely we are experiencing, or we have been experiencing the inflation impact through fuels and supplies that we have purchased, as well as services and construction contracts that we have outsourced. And there seems to be just no sign of relief on this high inflation. And that also impacted quite a bit in terms of our budget development. Next slide. So, as mentioned earlier, in order for us to really mitigate high increase rate trajectory and effort to bend the curve, we rolled out the initiative called star staff continue. This is where we were really looking at our current budget and see whether there's. opportunities for any kind of savings as well as utility-wide we had a net zero FT increase and I'm really pleased to share with you that we were able to actually identify some savings through our budget which we have been able to utilize to really fund new and emerging needs of the our utilities as well as identifying vacant positions that we will no longer need and be able to reduce them. So we have a net seven FTE reductions. It's going to get proposed within our TPE budget. So with that, I'm done with my portion and I'm going to be handing it over to Power to present their draft budget and grade. Is there any questions before I do that? Thank you. for this act for the the start sockets you know you shouldn't get the zero that fte's that was just the tpu original power initiative or is that this was t-u-y okay thank you thanks alex good morning chair hines gpfc members and the public utility board chair cross megan my name is kate hall and the power utility section manager for rates planning and analysis Like Alex mentioned, I'm here to share Paris draft budget and rate proposal for 2027 and 2028. Next slide, please. Thank you. This first slide provides an initial draft of our 2027-2028 budget and also our rate proposal in a few slides. On the right are our draft expenditure estimates, which will be updated between now and the end of September as we see revised projections from the budget office. So you may see numbers change between now and later when we come to you again in October, specifically in assessments and personnel. On the left is our funding plan. About 71% of the total expenditures are expected to be covered by retail revenues. including $82 million from the proposed 2027-28 rate adjustment. Wholesale revenues is projected to decline by about 40% from the last finding, this current finding, because wholesale electricity prices have dropped sharply since mid to late 2024. As a result, wholesale revenues are expected to fund only about 7% of our expenditures, which is down from about 13.5% as of this current finding. The teal bar in this graph highlights the planned use of our cash reserves and our rate stabilization fund, about $77 million total. We expect to use about $61 million from our operating cash, which represents 30% of our total balance for operating cash in $16 million of our rate stabilization fund. The remaining 16% of the funding will come from miscellaneous revenues and bond proceeds. We plan to issue bonds in mid-2027 to fund about half of our capital program. Next slide, please. In addition to lower wholesale revenue projections, Power continues to face sustained upward pressure on material and labor costs. Over the last five years, we've seen notable increases across essential utility materials such as poles, cables, transformers. While the general consumer price index for the western region has averaged just around three and a half percent over the last five years annually. Utility-specific construction costs have risen much faster. The Handy-Whitman Index is a utility-specific index that we track, and that index shows annualized increases of roughly 10 to 16 percent for transmission and distribution costs for our industry. Labor costs continue to grow as well. Agreements are negotiated on about a three-year cycle, and recent market adjustments have outpaced general wage inflation. Additionally, as Alex highlighted earlier, all divisions are experiencing increased personnel cost. About half of the Luchacom Power's clean energy supply comes from our own hydro projects. As you heard in the hydro relicensing update a few weeks ago, There are significant costs associated with the hydro relicensing effort, in addition to continued investments in these capital assets, which have a life cycle of 35 to 50 years. We maintain programs to refurbish and replace generating units so that they can continue to operate for another 35 plus years. So a lot of our hydro modernization projects are geared towards that. Tacoma Power faces many risks similar to other utilities. I'll just highlight a few of them in the interest of time. Over the years, we've seen increased risk from wholesale market volatility, especially in the last few years, policy and regulatory changes, and also aging infrastructure. We recognize that the real impacts that rate adjustments have on the customers and communities that we serve So in keeping with TPU's value of customer focus and the Public Utility Board's guiding principles of financial stability and resource stewardship, we have approached this budget and rate cycle with a careful and deliberate approach, which is outlined in our mitigation strategies. During the budget development process, Alex mentioned power also participated in the TPU-wide effort for a SARSOC continue initiative. We actually had a power-wide, our own strategic initiative for all of our operating units to identify a 10% reduction in what we call other O&M expenses, which are in supply, services, and other charges, if you're referencing the previous slide, the stack bar. So this led, this initiative for Power led to over $22 million in identified reductions, most of which were adopted by Power's senior leadership team and reflected in the proposed budget that you see today. We also took a hard look at our work and were able to repurpose some positions to support and meet TPU's net zero FTE target. And finally, although our capital prioritization process landed us at $260 million of capital investments for 2728, our proposed budget today reflects a reduction of that capital portfolio to $229 million. And this is based on historical performance and also in an effort to bring that capital investment amount more in line with our current 25-26 capital budget levels. Next slide, please. I've already discussed some of these budget highlights that you see on this slide, so I'll just focus on the ones I haven't covered. In addition to what I mentioned earlier about wholesale revenue decline, we're also seeing about a 10% drop in purchase power from last Monday. So that's on the good side since it's a 10% decrease in expenses. And you can see that if you look at the purchase power line and the difference of minus 10%. Most of that decrease is due to lower wholesale energy prices. So we see that impact of low wholesale prices, both on the revenue side and on the expense side. For some context, although we're usually net sellers for the wholesale market, we usually sell up to it, we typically do purchase a small amount throughout the year from the market just to rebalance and optimize our prices. The taxes shown here reflect the 7.5% gross earnings tax that was recently approved by voters for the Safe Screens Initiative and includes estimated taxes on kayak. So last, this current buy-in, sorry, we did not budget for gross earnings tax on kayak. that update is reflected in that increased tax expense amount. You see here under taxes, I think 13% difference. The increase in debt service is related to, you may recall, we did a bond issuance early mid-2025. That led us to some debt restructuring so that we're able to levelize our debt service and decrease our near-term debt service. The bar graphs on the left on this slide show our current finance capital portfolio along with our 2027-28 capital As I mentioned earlier, although we landed at over $260 million in capital investments prioritized in the next biennium, our proposed budget reflects a reduction to $229 million. Again, that's based on historical performance and to bring it in line with our current budget levels. The list on the right shows our continuing and new capital projects above $5 million. I'm happy to answer any questions you may have about our capital projects on the right, but in the interest of time, I will provide details on that. Next slide. We are proposing system-wide average rate adjustment of 7.8% for 27 and 28 for power. The rate adjustment by customer class is shown at the bottom of this slide. These are preliminary numbers subject to change between now and September, October when we finalize those updates. A major driver of this rate increase and rate adjustment, as I mentioned before, is a decline in our wholesale revenues, specifically $76 million decline since last weekend, contributing to an overall total revenue shortfall of $130 million before any rate adjustments. To close the gap, we plan to use, as I mentioned, about 30% of our operating cash and $16 million of our rate stabilization fund, along with the proposed rate adjustments. Beyond 2028, the rate trajectory is based on assumptions and will depend on how key risks unfold, including wholesale revenues and regulatory costs. Our expected case is approximately 5% annually. The lower end assumes that conditions largely track current assumptions, while the upper end at 10% reflects the potential impact of two critical water years. Just to be clear, we're not forecasting 10% every year. We just want to highlight the risks that critical water can happen to us at any time. So at any point in time over the next 10 years, if we have two critical water years in a row, we are looking at that upper end of 10%. The residential rate adjustment is currently estimated at 6.2% compared with 6.5% this biennium. That equates to roughly $7.50 to $8.50 more per month for the average residential customer. Differences that you see among customer classes rate adjustments reflect of service utility, we follow industry standards and cost causation principles, which means we charge each class for the cost that we incur to serve it. You may notice that large commercial and industrial customers, that's general class and high voltage general class, those are large commercial and industrial. have significant, are a little bit higher than the system average. That's because they have significant system capacity requirements for a class as a whole, and those system capacity costs have increased substantially, mainly related to transmission distribution over the last couple of years. Next slide, please. This slide shows our residential bill comparison with Western Regional Peer Utilities. As you can see, we're still in the lower end of the range at about $120 per month for 2026. We're showing you the 2026 peer utility rates and for context, including our proposed 2728 rate adjustments of seven and a half to eight and a half dollars per month for context. And it's important to note though that this is not yet an apples to apples comparison since rates for our care utilities have not been approved for those future years. We recognize that even relatively modest increases on a monthly bill can have significant impacts on customers who are already struggling to make ends meet. That's why we remain focused on helping our most vulnerable customers and have programs in place to reflect our broader commitment to affordability. The graph on the right shows how our utility assistance programs help reduce bills for customers who qualify based on income. The BCAP program is bill assistance for income-constrained customers, and the discount program is for our senior and disabled customers. On a percentage basis, the calculation of the discount comes out to be about 30 to 35% based on the program. Next slide, please. This last slide shows some of our peer utility rate increases that we've either heard about or have seen proposed online. We don't have publicly available information on rate adjustments for all of our peers. Also, their rate cycle is often different from ours. For example, Seattle City Light Council has already approved their 9.5% system-wide rate increase for 2017 and 2018. Both nationally and locally, electric utilities are facing a lot of rate pressure that's leading to higher rate levels, as you can see here. That's the last slide I have for power. Are there any questions?

I'm sure we have questions, so we'll start with Councilperson Dahlke.

Oh, okay. Can you go to that stacked bar graph you had at one of your first charts that showed your revenues and expenses? So are you saying that we are kind of funding some of the cost increases with 77 million dollars in reserve funding and that's comprised of 16 million dollars from one fund and 60-ish million dollars from another fund?

That's correct. So about 16 million dollars is what we plan to use of our operating cash. Through year end, and actually right now, we're about $200 million in operating cash. We plan to spend 60 of the $200 million in the next month.

Okay, so the 7.8% increase in rates plus this $77 million is kind of what our total real increase would have been in total. What is the dollar value of that 7.8%?

The dollar value of that 7.8% in terms of customer bill?

$77 million, right?

Of that $1.386 million, how much of that $1.386 is the 7.8%? I just wanted to do the math.

Sorry, let me do it really quick. The $82 million out of That is about 6% of the total expenditures of the budget.

No, I kind of wanted to know in dollars. We're proposing a total revenue of $386 million to meet our expense side, right?

Yes.

That includes the $7.8 million. 7.8 percent increase we're funding part of that increase to 77 million dollars right yeah so of the 1 billion 386 million dollars minus the 77 million dollars that we are kind of putting in the cash what percentage of the dollars left over is the rate increase percent uh dollars like how much more dollars are we putting into that whole stack as you would be from the reach

on the retail side.

So is it 7.8% of that $100 million?

Thank you. Yes, that $82 million rate adjustment is a percentage increase of our existing retail revenue. Oh, it's right there. I just can't see it. Sorry. It is a nine test.

Okay. So we are kind of funding a little less than 50% of what our cost increases have been through reserves. Is that right? Because $77 million through reserves, $18 million is the rate increase that we're putting in.

Yes, the rate adjustment. Okay.

On the right side, which one of those has all of those? So obviously personnel costs, $363 million. That includes our benefit increase costs in general, kind of inflation. Does purchase power have that? Does taxes have an increase by any amount? Maybe not here, but in the separate, could you just tell me of those things on the right, how much is that greater than expected kind of by aim over by aim increase? So I understand where it's kind of hitting.

Yeah, it's in the next slide.

It's in that next one?

Sorry, that's another eye test. Sorry, probably one more slide. There we go. So that's the biennium to biennium change.

Oh, are those categories exactly the same as you had? Yeah.

They should be.

Got it.

In the interest of space, that other cost tracks to supply services and other charges. But otherwise, the categories are the same.

Yeah. And even though purchase power is less over here, we had a higher decrease in those revenues. So net net is an actual...

on the revenue side we saw a reduction of 76 million dollars so that 76 minus 33 is the total negative hit on us so 43 net reduction from wholesale purchase So then, you know, if our revenues are declining by 43, something needs to make up for that 43 million. And that's just an isolation. There are, as you can see, some increases in other areas.

And last question, the wholesale electricity is excess capacity.

Excess generation.

Yeah. So if we don't sell it, we just don't run our machine. Exactly. There's no other place to put it because you either generate it at that minute and sell it or you don't run the generator.

Correct. We think of it as we use our hydro reservoirs, our The water behind the dams is a battery. You can think of it that way. You're absolutely correct. We either generate it and we, if we have access, we sell them to the wholesale market or we hold it back in some form of water behind the dams.

And the reason for less wholesale is just less demand from our partners elsewhere or?

And the price is low. Right.

And the price is too low.

The wholesale prices have significantly changed. Got it.

Juice ain't worth the squeeze.

Unfortunately, we're not getting as much as previously for exact same quantity. The price is now almost half.

So is the revenue decrease because it is a rate reduction in what we sell or just a quantity reduction of what we're generating in our time or both?

It's both because we only generate if the price is good to sell on. And if the price is not good to sell on, then we don't generate. there is a cost to generating sure power right so you want the price to be such that you're going to make money on it so if the price is too low then we don't we don't generate do we anticipate that lasting a very long time should this be a new normal for us that we just know about for the changes the wholesale market prices have been very very low since a huge drop in 2024 so um

It's really looking at the prices. If you're trying to sell a good to someone and you're like, well, I used to give you $40, but now I'm only going to give you 20 bucks for the exact same quantity.

And you can tell me offline, is there a structural reason why the price has gone down?

So it might seem counterintuitive, but the electric market pricing follows natural gas pricing. It's always followed. And it just happens that we're in a time where we've got a slug of capacity in natural gas that is sitting in reserves that's bringing down that pressure for the commodity supply, which equates to then reduced electricity prices in the wholesale market. That's one of the things. It also has to do with demand in different areas. It also has to do with unit contingency, but generally the big anchor between electric wholesale pricing and market pricing Well, electric wholesale market pricing is the natural gas prices.

I suppose my real question is, we have a two-year budget here. Do we think there's an upside potential, or is it going to be a continued downside potential, or we just can't really tell?

It's very hard to tell what the...

because because residents are like i am subsidizing the fact that you can't sell it high enough what if it changes do i get a savings well and we have we have the double whammy this year right so we have not only the depressed wholesale prices but we also have poor water here so and um you know maybe that's good or bad i don't know but we just like we can't predict the weather we can't predict what the we have some forwards that we can look at to get a trend but generally we're not seeing any uptick in in pricing at this point.

There's also just a change. If you look at California, they have increased their solar and whatever. They've also increased their battery capacity. So we used to sell a lot to California, and that's no longer happening. So the market is also changing on where we can sell to. And part of that is renewables as well as the price of natural gas.

Maybe it's a separate question to have to kind of understand this, because I have a two-fold question, which is, what is the long-term likes? plan around relying on wholesale if there is or not. And the second one is just, you know, 7.8% total increase, 6% for retail residents. You know, if we have statements like this, the question is, well, if we sell it again, are my rates going to drop? Right? Is the question I'm getting at. Right. And I want to understand what is a better way of answering that.

So, so generally as a rule of thumb, I think it would be good to come back and do kind of a, you know, markets overview, but as a general rule, it is very, we want to be very cautious about relying on wholesale revenues because they are unpredictable and they are not, we're not able to influence them, right? The market is the market and the water gear is the water gear. And those are two things that we have no control over. That being said, when we have a good strong water year, virtual sub pricing, like we did in 2022, where we had a slug of surplus power that we were able to sell in a really strong market, we put that aside knowing that we've got things like relicensing coming. So we're able to buy down some of those big cost exposures that we have in our horizon, but we, as an operating principle, should be very limited in relying on wholesale power revenues.

So I guess we have like the best version of that which is we're not we're not doing the nine percent that Seattle's doing it's because we did a better job of planning so that's why you're only doing an average.

Well we did come through some really tight uh weather also issues over the last couple years in a stronger position than many of our peers.

Thank you.

No uh my share. yeah thank you um and thank you for that when i was on the board when we were talking about the wholesale um i'll just say it was really important to us to make sure that we weren't overburdening our operations and we were keeping it separate and trying to buy down those costs i'm seeing it reflected now thankfully we made those decisions back then and reflected now it gives us all these options in order to make sure to you know uh for all these different impacts that we're having on rates. My question's just slightly different. A little bit further on, I saw the bar graph of the different rates and then the average And then on the bottom I saw kind of double-digit increases in terms of traffic lights and street lights Oh, yeah, 15 and 14 percent That seems like a lot. Could you kind of talk to me a little bit more about some of the cost drivers that are driving that? Yeah, sure So the traffic

signals and lights and private off-street lighting has historically been very very difficult to not only forecast but get actual data on because a lot of them are they're just flat flat piece so what we've been doing over time is for some of the For some of those, those are H1, H2. Last biennium, we recognized that we needed to catch up. We were under-recovering those. So last biennium, we actually implemented some gradualism into their rates. And we did increase their rates. Sorry, I keep on saying last biennium, current biennium. just under two times system average and we're doing that again again it's it's we're just trying to catch up with that under recovery so i would say at a high level that's the real reason behind that from a dollar perspective it's very um

How much of a gap are we trying to make up for over time? So next, are we to expect an additional 15, 14% in order to kind of catch us up? And then once we are caught up, what's the expected rate increases over time? And I recognize it's probably in the cents or very few dollars in terms of the street lighting and things of that nature.

Yeah, that's a great question. Jane, are you online?

But do you have the dollars?

Yes, I do have the dollars for street lighting. That increase is $64,000 for the biennium. For traffic signals, it's $53,000 for the biennium. And I realize the percentages are significant, but the dollar amounts are smaller for off-street lighting. It's about $860,000. And we'll take the other question and respond to you on that. Great. Thank you. I don't know if we do have time to just quickly answer.

I can get it later. OK. OK. Thank you.

All right. Does that number, is it just for the usage, the power usage? So any operations and maintenance of the signals and things like that, that's separate?

That's a great question. Jane, can you answer? There you are.

Hi, this is Jing, Tacoma Power Rates Manager. So the question is whether the lighting rates covers the cost of power supply only or not. It's not about the electric supply only. For H1, we also recover some of the common costs that we assign to that reclass. For H2 private off-street lighting, we actually recover a lot of the fixed costs, like the lighting fixture, the capital cost, the labor material to set up the lights. We don't charge upfront, and we recover that cost from their monthly rate. So for H2, there are a lot of fixed costs that we try to recover from their rates.

So it's not just the power that we're looking at, the rate increases. It's also for the maintenance of the facility, so to speak.

Especially for H2, the private off-street lighting.

I'm sorry, again. Jean is correct. The fixed costs are for the electric system to deliver. They are not for the physical maintenance of the actual light. That would be... Public Works.

We take care of that.

That's what I was trying to suss out, where that cost driver is. Because part of it, I imagine that there's some regular weather that might break a light down over time. There might be instances of vandalism, other things on the maintenance side that could drive costs.

Within the context of the city's right-of-way,

And the electric rates go to the generation and delivery of electricity and maintaining those systems that generate and deliver electricity, but not, you know, appurtenances that don't contribute to that mission.

And part of the reason why I think about that also is because a few years ago, we went through and replaced all the streetlights to LEDs that really cut back on the cost of cost drivers around the power supply.

Energy use.

Yeah, the energy use. It was significant decreases in energy usage. And so, but I feel like that was a project led by TPU to do that. It was a joint project. Yeah. Okay. Yeah. Okay, cool. Well, I'll stop my questions there. Thank you, Chair. Okay, thank you, Vice Chair Bushnell.

And I would have, I imagine the number one payer of that rate class for traffic sales license is the city of Tacoma?

Yes.

But we have, that's our entire service territory, so say University Place, or Fife, or some of the other folks that are in our service area, do they also pay that, or is that specifically just for Tacoma?

It would be anybody who has any one in Tacoma. Okay.

That was my one question. My other question was to go to the slide that had kind of the, it had our total tax bill and everything like that, and like the breakdown. I think it's the next, the slide prior to this one. And I'll just begin, no, the one before this. There we go, perfect. Okay, so one of the comments, or one of the things you said was we've built in the budget for kayak, but I guess my question is kayak is contribution to any of the construction, so is that just a prediction of how much we think we're going to get from it? because we can't actually assess that ahead of time.

Exactly, you're absolutely right. It's an estimate based on the store.

I do want to think that my rate class is being set by, it's a cover kayak after we had been told that it has to, it's by the construction folks. Okay, so that makes sense. And then my second point, question would be, of the taxes category that we're looking at in the future, how much of that do you think is related to the streets initiative that just passed? Like the $17 million, because we look at the difference between what was in the 25, 26 budget, and we look at 27, 28, and we see a $17 million increase in the amount of taxes we're budgeting for. What part, how much of that is kayak and how much of that is streets?

Do we know?

Okay, I just want to get a number on that one. And then prior to that, I know that we stopped collecting the utility tax on streets in June. Does anyone remember when the streets surcharge tax went away? March or April. But the rates didn't change. We had this whole conversation. There was a period by which the rates were set to pay a higher tax rate where the tax rate wasn't collected. when we talk about some of the savings on taxes, that is what the savings would be. That is a piece of the savings on taxes that we had. There was a difference in numbers, right?

It was about a year lapse between when the first initiative went in place and we started collecting taxes. And so when you think about, we're going to be at about a year lapse on that. So it's kind of a lush overall period. And to your point, the tax level will stay the same. So, you know, that, That adjustment, no change, goes up in here.

Gotcha. I'd love to know the number, what you all run for, what the street fishers are packing with tax bill for TPU is at the end. Sure. And then the other point I would just say, because we're still on this point, I will not be lost on it. I just want to make sure I say this. When we talk about the benefits of wholesale power, there is one of how it funds lots of things you've done. The other is that every dollar you sell in the wholesale market, we collect 8.5% of it gets taxed on. So there is a direct dollar amount that comes back to the city's general fund when you are more successful on your wholesale power. And it was 2022 was the big year, right?

And if I could pick up on that chair, I wish I was a little more clear earlier. So thank you for coming back to that. You know, the residential and retail rate customers do not subsidize wholesale. They benefit when we're able to capitalize on good wholesale conditions. So it's like, reducing that upward pressure. But the key is they're not factors that we can control in terms of wholesale pricing or water. So it's really, we need to be very careful about how we rely on wholesale. Yeah.

No, I mean, there's, and 2022 is a good example of, you know, that year we had a good, I don't have the number, but our get tax revenues were much higher that year because of what had happened with people plus the downward pressure you're able to place on. the rates later because of that, how that fits. I think it makes a lot of sense. I'd love for us to talk about how we can sell more wholesale power, and we'll add that as a presentation.

And better pricing.

Correct. Okay, those are my questions. So thank you all for the presentation. And I appreciate when we start seeing where all the other peer utilities are landing. I think we're landing at right about the same place. We're definitely not piercing.

That's a good thing.

Yes, it is. Okay. And is that the end of the power section? That is the end of the power section. Okay. And now we are on to water.

All right. Thank you, Chair Hines, PPFC, Board Chair, once again. I'm Haley Falk. I'm the financial services manager for Tacoma Water. I'm here to talk to you about the proposed 27-28 budget and rates. So we bring before you approximately a $380 million biennial budget. The majority of our revenue is due to water sales. As just previously mentioned, I'm going to call out that light blue color of that $23.3 million, which is the additional amount due to our proposed rate increases. So that 253 is what our current rates are with that additional amount. And then, like Power, we are planning on issuing bonds next year for a total of $80 million, which will cover the majority of the $82 million capital portfolio we have next year. And that tiny little gray line between the green and the blue is the capital reserves to offset the remaining $2 million. The majority of our expenses are in personnel and capital. We're a capital-heavy department, and the Office of the Debt Service, which we just talked about, is paying back those expenses. Next slide. So we have developed our biennial budget, not just in a two-year span, but in that 10-year, 50-year long-range approach. And so we need to adjust or we need to appropriate known risks, known and unknown risks, which include a lot of the same concepts that Power had. So I'm not going to read them all for you here. And we're also experiencing those same cost drivers. We're experiencing cost drivers in almost every expense category, whether that be insurance, construction, personnel, we're anticipating new regulations. And like Alex and Ying said, under the directive of our superintendent and our director, we're closely looking at reducing our expenses through the Stop Start Continue program and looking at other revenues to try to mitigate those costs. So we were also part of that net zero FTE target. We were able to reduce our contract services. We were able to look at some of the other measures for water treatment to try to reduce the cost where we could. And not directly affect rate payers. Next slide. So here's the quantity to the number version of what I've just said, which you can see we have increases in everything but that other cost. And the other cost is what we focused that start to stop continue on to cut where we could. The same concepts for personnel, the salaries have gone up for the market, the benefits have gone up. This does include that increase of two FTE, one of which is a project position related to the additional water storage project. And one is related to the Cascade Water Alliance, the CWA, which is a main revenue generation for us. So those are too many things, but they are net zero for the TPU overall. But again, we're seeing increases in every category. Our taxes include that kayak, the get off kayak. exactly what we were just saying. Those actuals were there, this biennium, but we had not budgeted for them, so we needed to budget for them. Also, B&O increased, so we need to account for that in our taxes. I'm just going to keep zooming because we're short on time here. Next slide. So going through our capital program, we also have a completion factor. So we have planned for a $102 million capital portfolio, but based off of historic spend, We are limiting our budget to $82 million. I just want to say our engineers are great at projecting what their expenses are going to be. It's not that our expenses are not going to be $102 million. It's just that they're likely not going to be able to spend $102 million next biennium. So we don't want to over collect before we need to. It's just that's due to regulations and other timing constraints that we've been able to talk about through. And a lot of these issues have to do with the water warehouse going on, other regulations that are coming forward that we really do need to put large capital projects in play to ensure continuity of service in the next 20 to 50 years. Next slide. Okay, so rates and projections, average rates, and then by customer class. We were able to have 6.5 rates this biennium and we're projecting it to 5.5% average rate for next year, next biennium. So we were able to decrease that slightly. We are optimistic that by 2036, we're able to reduce it back down to 4%. But just as in any caveat for any projection, we don't know what's going to happen. The market could change. I'm going to give you a range of things because tomorrow we can learn something new and this could be tough. But we're optimistic with what we're seeing so far. What that means on a customer class basis, and what Alex talked about is when we do that cost of service analysis, we look at behavior by customer class, and we see how much those customer classes use certain assets, and then what those expenses are to those assets. We determine then what those percentages should be for increases. Residential ends up being about 70% of our overall revenue. So that's why it's just about that average rate. So the 5.6 and the high point pie are very, very similar because when the majority of your pie is residential, that has to be just about your average rate. Those other swings have to do with investment into those assets. Also, it just behavior changes. That's not really lost by any. Next slide. So those percentages are great, but if you were me, what does the 5.5% mean? So we have dollar values for you here. On the left, you have gray bars, which represent the 2026 rates. The blue and the green are 27 and 28 respectively. On the left are our comparisons. The good note, the main takeaway here is that even by 2028 rates, we will still be lower than 2026 Seattle rates. So we are really mid, much like power. We are monitoring our other neighboring jurisdictions, but we don't want to present their rates until they've been codified because it's subject to change. Then on the right side, we have our fully rate payer, the BCAP, the bill credit assistance program, and then our discount rate. One thing to note here is that we actually see behavior change between our BCAP users and our discount users. So they typically use less water. So it's not just a discount here, but part of your rate is fixed and variable. So if you use less water, you pay less. So we wanted to give you a better sense of what the average bill would be for those users. And I think that gives me my five minutes. I'm trying to keep that cap. So I will open it up to any questions.

Thank you.

The $15 million in debt service, what are the constituents? I assume it's just higher capital costs coming in. In your list.

We have to issue debt. There's new debt payments coming in that have higher rates.

And you were talking about BCAP versus discount. What's the difference?

So the BCAP is based off of average median income, and then discount would be your elderly at the federal level.

And you're saying there's a behavior change with them or others?

So in the really small text that you probably can't read from this far, it says, on average, a ratepayer would use six CCF. A BCAP uses about... five, and it typically is the discount uses four, if I get this right. Yes?

So we see less water uses.

So then your bill will be less, right? So we want to ensure that when we're doing that fixed and variable percentage, if you use less water, you pay less.

Great. Vice Chair? I don't really have any questions. I'm thinking a lot about the capital, obviously very capital intensive pipeline on pressurization projects. I can't recall where we're at on that currently and how much of the capital staff that we're looking at is towards that project specifically.

It's definitely included. It's one of our main cost drivers. We have our top seven projects. That's up there. I would say it's not the largest cost

I'm guessing Howard Hansen is probably the largest.

So the Howard Hansen is also part of RWSS, though. So if you're talking about Tacoma's portion of that, it becomes lower. So I can give you that full list of the main capital projects. They don't have those costs memorized. We can follow that up with that.

Yeah, I'm just curious. It doesn't need to be like a whole deep dive into it.

And we're looking at multi-bionium, right? So that's a big infrastructure update. also like how we're looking at gradualism. So we want to make sure that we have enough money next time. So I can follow up with those.

Can we look at the slide? Thank you. Can we look at the slide with the comparative rate increases across classes? Here we go. Can you, without getting too much in the weeds about who we're talking about here, like large volume commercial versus commercial, who are there? What would be a good example of a customer like that? So is it a large private organization that would be spending all that money? Is it a large...

I'm going to call Andrew Zerumba, a person who has done a lot of this rate analysis.

Thanks, Haley, and thank you, Chair Hines and members of the GPFC. My name is Andrew Zerumba, economist with Tacoma Water. We have a very small number at this point of what would be considered large volumes. Right now they are Fredrickson Power, they use our water for boiling to generate power. We have US Oil, we have Boeing, I can't remember the exact name of the company, but they produce gypsum, which is used for power, I will.

Yeah, and they have their own bottling. So it's a very small number, and they just use different infrastructure than everybody else.

Okay, and then irrigation, so for somebody with irrigation, right, so I use my water to water my lawn, right, but so irrigation is something that's specifically hooked, like a golf course, where they're paying for irrigation, or is there somebody other than the golf course that might pay that rate? They, it would be, so for someone like you or any residential customer, your irrigation usage goes through your residential meter, but a residential customer, or sorry, irrigation customers typically Parks to Comer. Okay. Largely, homeowner's associations, separate irrigation meters that are used at like apartment complexes, separate irrigation meters that like commercial properties, and comp horses. All right. So a separate meter that's specifically for irrigation. That's right. Okay. Those are my questions. Thank you very much. All right. I imagine the questions are going to get less and less as we go through. Good morning, Chair Hines and board member Klaus McGann and members of the committee.

Draft budget for Tacoma Rail and corresponding rates, I do want to preface that again with this is all draft, but our rates as we're dialing those in, we're seeing that those are what we're going to likely be proposing later this year. But a lot of these numbers are draft as we're juggling some of these things around. Net zero FTEs, like the other utilities I've mentioned, for rail, but personnel costs are still going up, assessments are going up. Debt service, as we're paying off some of our loans that have been out there for more than 10 years, those are falling off and we'll be looking to get more 0% loans as we go into the future. Capital outlay is a giant increase. It's an increase due to our locomotive modernization projects as we've gotten a lot of grant money to offset that and we're purchasing a significant amount of cash that we've been saving up as a lot of those grants have been coming in. in order to do this in this large projects. Similar challenges, risks, and mitigation strategies for rail. I won't go into them all, but we've got a lot of strategies. We deal with a lot of things. You can add to this list of geopolitical tensions and all sorts of other stuff, but this is a high level of understanding. On the next slide, I wanted to point out our primary rate pairs, 93% are within the orange, blue, and green, which is BNSF, Union Pacific, and US Oil Refining. The Northwest Support Alliance does show up on this list in the purple, which is about 1% in the River South and the World Yard. Next. This is our expected switching tariff rate impact. The impact of this rate adjustment would be about 2.9 billion for our revenues. It's about a 2% average system rate increase. Some of them are 3%, and one of them is much lower on the liquid subdivision. And that has to do with, on the next slide, you'll see this. This is our rates over time. The liquid subdivision is the one in purple. They got a large rate increase early on. due to positive train control and the federal requirement to have that on that line. And then on the last slide, we've got a tariff rate comparison. Every road is a little bit different, but you can see as compared to And then also the C4 lines, which they just did an increase of 3% to 3.9%, depending on the line item. And they're a recent increase. And that's all I have to answer any questions you may have.

Okay.

And that concludes our Q&A.

And that's all. Yeah. Questions?

I just kind of going back a couple of slides on the locomotive modernization project. It's my understanding that there's been some challenges there in most recent years. Is that correct? Like in terms of the... I think it's my understanding. We were trying to do some electrification and others. Do we recall? I don't recall the status of that.

So we've... uh yes the current administration has said that we can't use those federal prison funds for electrification of rail so when you have transition and we're using state funding to do two electric locomotives rather than three we're going to use the that money from the federal side to do more diesel So it'll be a decrease of about 93% of particulate matter or emissions. So it's not as great as the electrification project, but we'll be able to do more of our locomotives, more of our fleet through this entire project.

We're still looking for wins where we can't win, of course. So that's a really good win, I think. And then are we, maybe this is an offline question, I'm thinking about the customer base is not significant and how do we increase the amount of customers that we have out there.

But maybe we can talk about that offline. I appreciate it. Thank you.

Back to you, Michelle.

No, that's the presentation I thought was... It's always an interesting one, right? Great job. I think my question is probably related to Deb Meyers Bushnell's question, which is a conversation where we're really dependent on three customers and three large people that fund most of our services. And so a further question, maybe not for this person, but are there other larger folks or ways we can kind of expand?

So if I may, we're connected to the greater rail network. We don't move that car from Tacoma to Chicago. We're like a subcontractor to the BNSF and UP. So that's why they pay most of our rates. It's through our customers that they pay the shipping rates to the BNSF and UP. And then from them, they pay us.

So we're always going to see a disproportionate representation of those two large players, because they're the two ones that control all the railways at Adam Coleman.

Absolutely. We do have 40 customers, and that makes up that distribution.

It would be great to talk about that. I think the other question, not for this presentation, I think a few years ago we had the presentation of rail traffic composition and how that shifted and changed over time. Probably time to have that. I'd love to have that conversation again back here at maybe see what you all are seeing in the marketplace. But not related to rates, because it's not about rates in that one. So with that, I see no further questions. Thank you all for being here today. And just wait. If you thought we were done after three utilities, there is more. So with that, I'd like to bring up our second presentation. which is Environmental Services 2027-2028 proposed budget and rates revenues. I'd like to call on Dominic Greco and Mark Westlund from Environmental Services to join us.

All right.

Good morning, GPFC. My name is Dominic Greco. I am the budget manager for Environmental Services, and I supervise our rates and budget team. Joining me today is Mark Westland. He is our data principal, principal data analyst, who also leads rate development for the utilities. Next slide, please. So we're here today to present the Environmental Services revenue requirements for our three utilities for the 27-28 biennium. While you'll see projected rate increases for the next six years in this presentation, we're only going to be bringing forward to council a request for a two-year revenue increases, and that's going to line up with our biennial budget process. I'll start today by talking about the principles that guide how we set rates, then walk through the baseline budget and some key cost pressures each utility is facing, and I'll close by kind of highlighting some of the key capital projects we have in the next biennial. Then I'll turn it over to Mark, who is our rates guru, to kind of talk about our proposed rate increases, peer bill comparisons, and the projected impact on the average residential customer. Next slide, please. So this slide should look relatively familiar. I don't know if you just presented it. I do want to highlight three specific kind of principles that I think are important. The first is cost recovery. As a public utility, our goal is not to make a profit, it's to recover the cost of providing a reliable service to our community. The second is bill stability. We take a gradual approach to rate increases so we can avoid large rate spikes that can cause additional affordability challenges for households. We've seen other utilities in our region, especially on the wastewater side, that are proposing double-digit or have potential to propose double-digit rate increases. And one way we've kind of avoided that is through these kind of gradual increases over time, rather than deferring increases, which just pass a lot of costs for later. And then the third principle, which I think is probably the most important, is the idea that we need to operate as a lifecycle utility. Now that means we separate, not just based on what we need to operate today, but what is the long-term cost of, you know, kind of preparing and maintaining and replacing our system over time. Because our goal is to make sure that our utilities can provide reliable services for the future. So those are the principles that we use for setting rates. And then from there, the process is really straightforward. And next slide. Again, another slide we borrowed from TPU. Very similar rate-making process. I do want to highlight that each utility we have, so out of our three utilities, we all have slightly a different rate design. So solid waste rates are largely based on volume. Wastewater rates are reflective of both flow and strength. And then stormwater rates are based on parcel size and development characteristics. So this is the time, I won't talk too much about the rate making process, but the first step is always understanding what our costs are to provide service. So we'll move over and talk about the baseline budget next.

Next slide, perfect.

So our baseline budget shows what it costs to operate each utility before we add any new service enhancements. Looking back at last biennium, so 23-24, both wastewater and stormwater underspent due to some capital delays that got pushed into the 25-26 biennium. Then when you look ahead to 27 and 28, you're going to see roughly a $4 million increase for both solid waste and stormwater. Solid waste, that increase is related to higher operating costs, and stormwater that is largely driven by uptick in capital spending, so we're trying to put out more capital projects in the next five years. Wastewater is a little bit interesting because we're seeing a slight decrease, but that's primarily because we've already pushed out capital projects from 27, 28 into 29, 30. It's also important to recognize that our utilities have very different capital needs. Solid waste is obviously the least capital intensive. There is one facility called the Covered Transfer Center, and then all of our vehicles. And then wastewater and stormwater are definitely more capital intensive. So solid waste is 13% capital, representing our budget is 13%. And wastewater and stormwater are between 45 and 50. So that kind of gives us a good picture of what it would cost to operate the utilities today. But because we're managing these systems over their full life cycle, we also need to look beyond the next biennium and make sure our rates can support the system over the long term. So I want to now talk about some future cost drivers that our utilities are going to see. So for solid waste, the cost to dispose of waste has just increased in recent years, and we are preparing for the 304th landfill for its closure. So the city needs to kind of plan for a long-term strategy of how we're going to dispose of waste and those decisions are really shaping the master plan for the recovery and transfer center as well as we may need to potentially shift away from long haul trucking to rail and that would be a major change in how we currently manage and dispose of municipal solid waste. For wastewater We're seeing planned growth and densification in the city, which will push the system closer to capacity. That means we'll need to upsize collection system pipes and expand treatment capacity at the central treatment plant. We also need to prepare for new nutrient reduction requirements, which will require the construction of treatment processes at our plants that they currently do not have. For stormwater, new regulatory requirements are also on the horizon, including the soon-to-be-issued tribal waters permit. Staff are also watching and urging candidates of concern, which will potentially lead to future regulations. And across both wastewater and stormwater, which are capital intensive utilities, we have a significant amount of infrastructure that's aging. Our asset management group is doing a great job at prioritizing those replacements, but as more of our system reaches that end of its useful life, we'll need to increase our capital spending to maintain reliability and avoid service disruptions. So not all of these pressures are gonna show up in the next two year budget, but they are gonna shape the decision we're making today.

Pass the next slide.

So our strategy for the upcoming biennial budget was really focused on balancing what we need today with what we know is coming next. Each biennium, we start with a detailed review of our baseline costs, so we have a clear picture of what it takes to provide service. From there, we look for efficiencies and identify areas where we can stop, reduce, or change work that is no longer critical to our mission. Keeping the system reliable is our top priority, especially given the age of our infrastructure and the potential need for new regulatory changes. We're also looking for new sources of revenue that can strengthen our long-term position to limit the pressure on rates. So really our strategy came down to three things. The first was taking care of what we have. The second is managing what could go wrong. And the third is really preparing for what's next. So a big part of our strategy is the investment in our infrastructure. So before I turn it over to Mark, I just want to highlight a couple of large capital projects we have planned for 27-28. That's on the next slide. So the first one is the Gallup App Zero Utility Project. That is one of our big projects. It is to replace, reroute, and rehabilitate major wastewater and stormwater trunk mains. The cost shown here, the $104.9 million, is a little different than what has been presented previously because we're actually including the full cost of the project, which includes an additional stormwater piece, as well as the related transportation work being done by Public Works. The next project is the wastewater trunk main replacement at First Creek, and that's to replace 1500 feet of a 15 year old arch concrete trunk main. The next one is the Titlow pump station improvements. So that's just to rehabilitate the pump station's structural, mechanical, and electrical systems. And then the last project I want to highlight is the north end treatment plant trickling filter. So this project will replace our current trickling filter and expand the disinfection contact basin, which are both needed for compliance with our NPDES permit. Okay, so I ran through that very, very fast in the interest of time, because I know we want to get on to what Mark's going to talk about, which is the importance of our rain increases.

Do we have any questions?

Real quick, I would just like, you don't have to answer here.

So here you will see our projected major revenue pieces in the next biennium for 27 and 28. You can see the biggest portion of our revenue for all three utilities are our rate revenue, which are in the two blue bars, the dark blue representing the residential rate revenues in the lighter blue being the commercial. The reason they vary a little bit is to what Dominic mentioned with the different rate structures and also the different customers that we have in those two classes. You'll see in the orange band, there is actually for all three, but the orange band for stormwater is pretty small. In our other revenues, the main piece in solid waste are our fees at our solid waste facility for anybody using our disposal services there. under wastewater the biggest one are our interlocal contracts we have with some of our neighboring agencies where we provide the final end of the wastewater service for those neighboring agencies though in there as well as that small amount on stormwater that also does reflect those newly approved system development charges which has gone for council already so we are reflecting those in the next biennium since we expect to start seeing those revenues this year but Since it was mid-year, we didn't have that effective. You can see for our two sewer utilities, wastewater and stormwater, we also have significant bonds planned for the next biennium. The plan is to issue those in 2027, though we do have a little wiggle room financially. If market conditions may look better to issue them in, say, 2028, we can do that as well. make sure we are monitoring market conditions to try and time it the best to get our best possible rates on those bonds to, you know, lessen the impact to our individual customers. Can you move to the next slide, please? So here you'll see our six-year revenue plan, including the rates for the next biennium, a 5% increase in solid waste . Wastewater, you'll see a 6.5% increase in the next biennium, and a 7.5% for stormwater. One thing I'd just like to point out, we obviously show this every biennium when we present our rates. For solid waste and stormwater, these are the rates that we had projected in 2024. So we have continued to fit right on plan. Wastewater is close. We were hoping for a 6% rate increase down from a 7% this past biennium for 2025-2026. But due to the just major of the costs, particularly on the capital side, we are looking at a 6.5% increase. Solid waste is closer to our general inflation targets. That's why we see a consistent rate throughout those six years. For our two sewer utilities, we are slowly trending down as we move out of hopefully the higher inflationary environment that we had in the early 2020s. That was particularly high, already mentioned by TPU, especially on the construction side of business with those utilities being so capital intensive. Obviously, these are projections, and as I mentioned before, they can change and slightly go higher or lower depending on regulatory changes, I would say, especially on the wastewater side that Dominic touched on with the nutrients, which could have a significant impact depending on what happens on that side. If we could move to the next slide, please. Here you will see our residential bill comparison. This is for our average residential customer. If you look at this later, there's a Nice long description at the bottom that gives you all the little assumptions and details about what that represents. We are the three bars on the far right-hand side. These are the 2026 rates. So you can see we are tending to be kind of in the middle of those rates. The one I will notice that's kind of low is Spokane. That is always driven by the fact they have a very low stormwater bill. Since they are inland and receive just much less precipitation, their stormwater needs are far smaller than most of our other comparison utilities that we use. You can see the rates as they increase in 27 and 28 on the far right, as mentioned, similar to TPU. This is comparison to today's rates, since we don't have necessarily exactly with those. And some of those utilities have different timing, particularly within the utilities, right? Since we're talking about three different utilities, each utility might be on a different schedule. Particularly for many of these utilities, their garbage is actually a private service, not a public utility. The number above the bar chart you'll see, that is the percentage of area media income that is represented by that. That is using the 2024 number from the American Community Survey done by the US Census Bureau. If we move to the next slide, you will see what the specific amount of those projected rate increases for our three utilities in 27 and 28. And then on the far right, what those represent in dollar changes. Those are year over year. So for the first one being 26 to 27, and then the farthest right column would be from 27 to 28. If you look in total for our average customer that has all three services from the City of Tacoma utilities, you would see just under a $10.50 increase in 2027 and just slightly over that $11.50 increase in 2028 for our average customer. If we can move to the next slide, we did want to show kind of what that represents on BCAP side of things for those customers, both the difference in 2027 as well as in 2028. On the far right, that is our projected discount that we are planning to offer for our customers in those two years. You see $16 and $17 and $27 and $28 respectively for wastewater, $8 and $9 for stormwater, and then a flat $18.32. The reason that is higher is one, last biennium, we added a $3 increase in our normal 20% to kind of help our BCAP customers deal with the cost of the excise tax, and they are exempt from the recycling surcharge that's $2.32 a month. So that's why that number is not the nice round number that the other two are. You'll see in total, if you look at somebody who's enrolled for BCAP for all three of our utilities, there would be a little over a $42 discount in 2027 and a $44 discount as we move into 2028. If you could move to the next slide. Part of the, one last thing we just wanted to talk about is the growth in our VCAP customers. This has been, we think it was really a win, right? As we get those assistance to those customers that need it. If we actually went farther out before 2025, you would see just an increase over those last few years. The folks at TPU have done a fantastic job in reaching out to more customers and continuing to sign up more customers. That has meant that it is an increased cost to us in 2025. We actually did already exceed our budgeted amount, and we will almost certainly again in 2026. As you can see, we're seeing so far this year roughly an 18% increase in customers. Due to that, we did increase our budgeted amount for our VCAT program in the next biennium. It'll be a little over half a million dollars between the three utilities in both 2027 as well as in 2028. to cover those additional costs, both from the increase, as well as we will be moving to a fully automatic credit instead of partially automatic, partially ARC. So between the growth and that change, we are increasing our budget, which really is, I think, a positive summary, even if it does come to a negative response. If you move to the next slide, so this is just a quick kind of next steps, obviously, October 6th, that is when the city manager is scheduled to talk about the overall proposed budget, and then the following week, the EPW department will be doing our budget overview at study session. Through the next three months, starting in September through November, we will be doing outreach to the community, different organizations, as well as the neighborhood councils, attending those meetings, discussing our rate changes and rate proposals. And then in November, you should see our rates and budget ordinances for our first and second readings, though obviously those dates are tentatively. So then just that wraps that up. If you just move to the next slide, just a quick thank you from us, and we're happy to answer any questions. All right.

No questions? Not right now.

Vice Chair Bushnell, any questions? I do. Thank you, Chair. Thank you for the presentation. In a lot of the other utilities, we saw a lot of like bonding and debt service and other things like that. I'm not sure I saw that here. Is that a part of our budget projections as well of how we're going to look into the future? Because there's clearly a lot of capital needs, capital intensive needs that we're going to have going forward.

We do have that. It's just that with three utilities, it's hard to show on a graph. But we do have that same kind of projections about what our costs are for personnel, debt issuance, and all those different costs. Debt issuance for the two sewer utilities will go up a little bit in 27, 28 when we issue new bonds. Those should actually be decreasing since we're not going to be issuing any debts in solid waste as we start paying down the debt we already have. If that is information that you would like to see, that is something we can

Yeah, I don't know how deep in the weeds I really need to go. On the solid waste side, you know, I think that the big elephant in the room is the closure of the dump over there. I don't know. A better way to call it. A solid waste receptacle facility. Or a landfill. Yeah, a landfill facility. I imagine that there's just so many unknowns because we're still trying to figure out, there's a lot of unknown unknowns. Yes. And so how are we kind of trying to allay some of the risks that we're going to be having without knowing, right? So are we setting money aside now for that eventuality? And do we have an idea of how much that we might need for that?

So we're still going through kind of So we're trying to figure out, well, where can we take our garbage? If it's not at 304th, does it have to go Eastern Washington? Is it going to go down to Oregon? We're trying to figure that out right now. So we're already starting that kind of process with our RFPs and our RFBs, kind of doing that research. We kind of have an idea, but I don't want to speak exact numbers because I don't have those right now.

But I can always follow up with you and get you some more finite numbers.

Yeah, and part of the reason why I bring it up is because if we know that we're going to have these pretty significant costs in the future, how are we building that into the rate structure now so that we're doing that gradualism over time? And is it built into the current rate structure we have now, or is that something that we're going to have to look at as the RFPs kind of give us a better idea of the dollar amounts?

Once we get the RFPs, we'll get a better idea of the dollar amounts. But there are some capital plugs we have. Romero, I want to

to jump in here because i've seen five percent five percent for in perpetuity and like to me that kind of was a little bit of a red flag knowing that we have these moving things with the 10 15 years down the line thank you romero chavez director of environment and public works and uh dominic uh stated that we're in the process of issuing request for proposals and that is going to give us the uh the insight as to where we need to take that refuse. And it's very limited locations that we have. There's one in Oregon and the other one is east of Washington. And the key of that is how we're going to be transporting the refuse over those two, one of the two. And that is probably a partnership we're going to be exploring with the Commonwealth Rail that we can use some of those facilities to transport that refuse. So as soon as we can get to that point of understanding how much it's going to cost, then we need to start projecting how we're going to be able to repay for that. Certainly, it may be an impact down the road, but at this point, we cannot put our hands around as to how much that will be. So it will be extremely difficult for us to really highlight the rates that you see, you know, 5% and that will be the same, but we're planning to do that.

Yeah, it's so hard because, like I said, unknown unknowns, and I'm concerned about double-digit rate increases.

So we do have some cash reserves in our operating funds, and that is something we've been monitoring and keeping track of to make sure we do have some wiggle room to avoid exactly what you're talking about.

Significant rate shocks to our community. So that's what I'm mainly trying to avoid.

Yeah, we are not expecting that even with increased costs. We may have to gradually, but we do have some cash reserves that we can do that hopefully slowly. Plus, we do have the ability to do some bonding, as I mentioned. We were planning to do bonding next year in 2027, but we do actually have the debt capacity if that is a necessity.

Okay, that's great that we still have options for us to kind of make sure that we mitigate the impact of

Originally at the beginning of our rate cycle, we actually were originally planning to have a bond in 2027, but we found we just don't really need it at this point based on where we know our capital needs. But depending on what those costs are, particularly if they are capital intensive, then that would be a good way to look into our bond options.

great thank you and then as that's explored i i really i'm glad to see that we have we're in a unique position as a city to have such a great rail utility that we can rely on as a partner um so i'm really looking forward to seeing what kind of creative opportunities we can come up with uh to help our residents so that's it for me thank you uh thank you thank you no i don't think i have any further questions i think presentation answered a lot of mine i do was wondering about the long term

kind of risk is presented by the fact that LRI's landfill is going to be closing here. What's the depth? I know they tell us one target date, but what's the date we've been testing that it's going to be close by?

I don't want to speak for our operations staff, but last I heard it's 2030-ish.

That's tomorrow. It's very soon. Yeah. So, I mean, I think that's a... not a long-term risk, but a shorter-term risk.

And also we're having conversations with Pierce County because they're also going to be in the same situation. As the land flows, it's reaching capacity. They need to send their refuge somewhere. So there's coordination with Pierce County, conversations with them as well. Yeah.

I think that makes a lot of sense. And then just looking at the capital outlays we have ahead for wastewater and stormwater compliance with a lot of regulations and statewide regulations, it makes a lot of sense to see why we're ending there. So no, I don't have any follow-up questions on this one. I did want to say, just to give you the opportunity to thank all the staff for all the effort you all have done around getting enrolled in a BCAP. I know it's kind of a gift and a curse problem, but I would just say I'm very proud that you give credit to the TPU board and the council members, because I remember back in 2022 or 2023, we had a presentation on BCAP and the question that kicked around by many of us was, well, are we actually getting everyone who qualifies involved in it? Like, what are we doing to try to expand that number? And you all have done an amazing job of really kind of taking that and running with it. So, Brad, give my kudos to you all and your staff, and I want to just shout out the TPU board for their work on this. I know this has been a big priority for theirs. So with that, if there are no further questions, thank you all for the presentation. Okay, with that. Sorry, a question I have, and Andy, maybe I can ask, maybe people are still never making answers to this question, but I did notice when we look at the rates, that's the utility rates, so excise taxes that are placed on top of those rates or get taxes that are placed on top of those, those are not reflected in the cost that we're seeing to the rest, correct? They're just part of the rate calculation. Current excise tax, no, like tiny up excise tax, no, that's not at the rate that's in the top. When we looked at Spokane's solid waste rate, I do know that Spokane charges a 20% get tax on solid waste out there. So that's obviously not reflected in that number you were showing to compare to them. So we'll start thinking how much more they pay. Okay. With that, we got, this is, thank you all for being here. This is always our biggest GPS TV in which we go through all the rates. Chair Crosby-Ann, do you have anything you'd like to add at this point in time?

No, I don't. I'm good. All right.

We'll now move on to topics for upcoming meetings. I'll turn it over to Annie Trillo, Executive Lead, on topics for upcoming meetings.

September 1st is canceled, so that's easy.

September 15th, we have four items scheduled on there. We're probably going to move a couple of those off to October 6th, but right now we have a fee schedule from OMB. We have the return of the housing accelerator conversation. We have an exit conference that the State Auditor would like to do, and we have our tax and license group talking about some changes to the model ordinance.

We'll get that sorted and move some of those to October 6th.

Yeah, let's figure out what we can do to kind of maybe limit that one, though those are usually technically pretty quick. Alright, are there any other items of interest? Move to adjourn. Second. Alright, let's move to the second. All those in favor signify by saying aye. Aye. All those opposed? Most adopted. Cassandra.