Proposed Water Rate Notice and Workshop/Hearing DatesSWD Water Rate Study 2026

 

2026 RATE STUDY OVERVIEW

The District engaged Water Resources Economics, LLC (WRE), California's leading professional experts in Water Rate Studies,  in October 2025 to conduct a rate study to establish a new five-year proposed rate schedule from FY 2026/27 through FY 2030/31. The primary purpose of this updated rate study was to evaluate the District’s near-term funding requirements and to calculate proposed rates that will comply with all applicable laws while ensuring financial stability.

 

LEGAL REQUIREMENTS
Legal considerations relating to retail water rates in California focus heavily on Proposition 218, which was enacted in 1996 and is now reflected in Article XIII C and Article XIII D of the California Constitution. Proposition 218 states that “property related fees and charges” (which include retail water rates) may not exceed the proportional cost of providing the service to the customer and may not be used for any purpose other than providing said service. The practical implication is that public retail water agencies in California must demonstrate a sufficient nexus between the costs incurred by the agency to provide service and the rates charged to customers.
 

RATE-SETTING METHODOLOGY
The study was conducted using industry-standard methodology outlined by the American Water Works Association in its Manual of Water Supply Practices M1: Principles of Water Rates, Fees and Charges, Seventh Edition. The rate study process includes the following steps:

1. Financial Plan: Annual revenues and expenses are projected over the rate-setting period to determine the magnitude of rate increases needed to maintain financial sufficiency.

2. Cost-of-Service Analysis: Costs are allocated to customers in proportion to use of and burden on the water system. The overall goal is to establish a robust nexus between the costs incurred by an agency and the rates charged to customers.

3. Rate Design: The existing rate structure is evaluated, and potential changes are considered. A multi-year proposed rate schedule is then calculated directly from the results of the financial plan and cost-of-service analysis.
 

4. Rate Study Documentation: A rate study report is developed to document the proposed rate development process. This provides transparency and enhances legal defensibility in light of Proposition 218 requirements.

 

FINANCIAL PLAN
Proposed Revenue Adjustments
Revenue adjustments represent additional revenue generated by proposed rate increases. Various revenue adjustment scenarios were considered and refined based on input from District staff. During a Board meeting on January 27, 2026, the Board of Directors instructed District staff and WRE to proceed with proposed revenue adjustments of 9% per year over the next five years.

Serrano Water District will have conducted a total of four worshops and a public hearing prior to any proposed incresases occur. 

Key factors driving the need for the proposed revenue adjustments include:

Substantial capital improvements: Projected capital improvement plan (CIP) project costs total $47.9 million over the five-year rate-setting period. Although nearly 70% of five-year CIP is expected to be debt funded, revenue adjustments are necessary to cover cash funded CIP projects and to meet debt obligations. Projects include new well construction, Smith Reservoir replacement, and other critical projects.

Water supply cost increases: The proposed revenue adjustments account for projected cost increases in imported water purchased from the Municipal Water District of Orange County (MWDOC) and groundwater pumping assessments collected by Orange County Water District (OCWD). The District has little to no control over these costs, which are projected to increase by 13.7% per year on average over the rate-setting period.
 

Inflationary cost increases: Other operations and maintenance (O&M) expenses are projected to increase by 4.6% annually on average over the next five years due to cost inflation. In particular, the cost of electricity is expected to rise substantially.
 

Reduced water demand: The currently adopted rate schedule was designed to generate sufficient revenue based on water demands of about 2,600 acre-feet per year (AFY). Water demand over the next five years is now projected at 2,400 AFY due to recent periods of drought and improved conservation/efficiency. Revenue losses tend to exceed cost savings when water demand declines. This results in the need for higher rate increases to offset the associated financial impacts.