TO: Mayor and Councilmembers
FROM: Tom Westbrook, City Manager
SUBJECT:
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Discussion Regarding Ownership and Operational Alternatives for Municipal Water and Wastewater Utilities
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RECOMMENDED COUNCIL ACTION:
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Receive information regarding the various ownership, governance, and operational models available for municipal water and wastewater utilities and provide direction to staff, if any.
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SUMMARY:
The City of Red Bluff owns and operates both a municipal water utility and a wastewater utility that provide essential public services to residents, businesses, and industries throughout the city. Red Bluff, like many cities throughout California, faces increasing costs associated with maintaining aging infrastructure, complying with increasingly stringent state and federal environmental regulations, and funding significant capital improvements necessary to ensure reliable service for future generations.
Recent planning efforts, including the Water and Sewer Master Plans, have identified substantial long-term infrastructure investments. The City is currently in a Proposition 218 process to adjust water and sewer rates that have been in place since 2012. In addition, the City is currently pursuing financing opportunities for the Wastewater Treatment Plant Reliability Project through the State Water Resources Control Board's Clean Water State Revolving Fund (CWSRF) program and must adjust sewer rates to be eligible for those funds.
As cities throughout California evaluate long-term financial sustainability, some agencies have explored alternative governance, ownership, or operational structures for utility systems. These alternatives range from maintaining full municipal ownership while contracting operations to transferring ownership to another public agency or, less commonly, selling utility assets to a regulated investor-owned utility.
The purpose of this report is informational only and is intended to provide the City Council with an overview of the various models utilized throughout California.
PREVIOUS COUNCIL ACTION:
At the City Council meeting of August 4, 2026, under Future Agenda Items the Council, by concurrence, requested a discussion regarding options for water and wastewater utilities.
DISCUSSION:
California law provides municipalities with several options regarding the ownership and operation of municipal water and wastewater utilities. These options differ significantly in terms of governance, financial implications, local control, customer rates, regulatory oversight, and long-term liability.
Option 1 - Continue Municipal Ownership and Operation
The traditional model utilized by most California cities is direct municipal ownership and operation. Under this model, the City:
• Owns all utility infrastructure.
• Employs utility personnel.
• Establishes rates pursuant to Proposition 218.
• Retains all operational control.
• Maintains responsibility for regulatory compliance.
• Funds all capital improvements.
Advantages
• Complete local control.
• Direct accountability to residents.
• Ability to coordinate utility planning with land use and economic development.
• Local decision-making regarding rates and capital improvements.
Challenges
• Significant capital investment requirements.
• Recruitment and retention of certified operators or employees.
• Increasing regulatory compliance costs.
• Long-term infrastructure replacement obligations.
Option 2 - Operations and Maintenance Contract
Rather than selling utility assets, municipalities may retain ownership while contracting daily operations to a qualified private utility operator. The City of Red Bluff has a contract with Jacobs for the Operations and Maintenance (O&M) of the Wastewater Treatment Plan. In the Operations and Maintenance contract model, the City continues to own all assets while the contractor performs operational services such as:
• Treatment plant operations
• Distribution system maintenance
• Laboratory testing
• Emergency response
• Regulatory reporting
Advantages
• Retains public ownership.
• Access to specialized expertise.
• Potential operational efficiencies.
• Reduced staffing challenges.
Challenges
• Reduced direct operational oversight.
• Contract administration requirements.
• Long-term contractor performance monitoring.
Option 3 - Regional Partnership or Joint Powers Authority (JPA)
Several California agencies have established regional partnerships through Joint Powers Authorities (JPAs) or cooperative agreements. Under this model, multiple agencies jointly operate or manage facilities such as:
• Wastewater treatment plants
• Laboratory services
• Engineering services
• Recycled water systems
• Administrative support
Ownership may remain with each participating agency while operational responsibilities are shared.
Advantages
• Economies of scale.
• Shared expertise.
• Reduced operating costs.
• Regional collaboration.
Challenges
• Shared governance.
• More complex decision-making.
• Potential loss of unilateral control.
Option 4 - Transfer to Another Public Agency
A municipality may transfer ownership of its utility system to another public entity. Potential acquiring agencies include:
• Community Services Districts
• County Water Districts
• Municipal Water Districts
• Sanitation Districts
• Neighboring cities
The acquiring public agency assumes responsibility for:
• Operations
• Maintenance
• Capital improvements
• Regulatory compliance
• Rate setting
Advantages
• Public ownership remains.
• Potential economies of scale.
• Reduced municipal liability.
• Professional utility management.
Challenges
• Loss of direct City control.
• Governance transferred to another elected board.
• Negotiated transfer process.
Option 5 - Long-Term Lease or Concession Agreement
Instead of selling the utility system, the City may enter into a long-term lease or concession agreement. Under this approach:
• The City retains ownership.
• Another entity operates the system.
• The City receives lease payments.
• Infrastructure is returned to the City at the conclusion of the lease.
Lease terms commonly range from twenty to fifty years.
Advantages
• Retains ownership.
• Generates revenue.
• Transfers operational responsibility.
Challenges
• Long-term contractual commitments.
• Limited operational flexibility during lease term.
Option 6 - Sale to a Regulated Investor-Owned Utility
Although not as common in California, municipalities may sell utility systems to investor-owned utilities. The acquiring utility becomes responsible for:
• Operations
• Capital improvements
• Maintenance
• Regulatory compliance
• Customer service
Rates are subsequently regulated by the California Public Utilities Commission (CPUC) rather than the City Council. For utilities located within city limits, California Public Utilities Code generally requires voter approval before the sale or transfer can occur, along with additional statutory findings and disclosures.
Advantages
• Immediate financial return from asset sale.
• Transfer of future capital obligations.
• Reduced municipal liability.
Challenges
• Loss of local control.
• Future rates determined through CPUC proceedings.
• Significant public policy considerations.
• Potential voter approval requirement.
COMPARISON OF AVAILABLE MODELS
|
Model |
Asset Ownership |
Operations |
Local Rate Control |
Capital Responsibility |
|
Municipal Utility |
City |
City |
City Council |
City |
|
*O&M Contract* |
City |
Private Contractor |
City Council |
City |
|
JPA/Regional Partnership |
Shared |
Shared |
Shared Governance |
Shared |
|
Transfer to Public Agency |
Public Agency |
Public Agency |
Public Agency |
Public Agency |
|
Long-Term Lease |
City |
Lessee |
Depends on Agreement |
Depends on Agreement |
|
Sale to Investor-Owned Utility |
Private Utility |
Private Utility |
**CPUC** |
Private Utility |
*Operations & Maintenance*
**California Public Utilities Commission**
Red Bluff has made significant investments in planning for its utility infrastructure through the adoption of the Water and Sewer Master Plans and with the initiation of the Proposition 218 process for water and sewer rate adjustments. In addition, the City is actively pursuing financing for major wastewater infrastructure improvements while continuing to maintain reliable utility services.
Given the City's existing utility systems, customer base, and ongoing capital planning efforts, maintaining municipal ownership continues to provide the City with direct control over utility planning, customer rates, service levels, and future infrastructure investments.
Should the City Council desire to explore any alternative governance or operational models in the future, staff would recommend creation of an Ad Hoc committee to work with staff to develop options for Council consideration.
CITY FISCAL IMPACT:
There is no fiscal impact associated with receiving this informational report.