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absorbed the increase rather than passing it along to consumers, but is not in the position to do so any longer. For comparative purposes, he noted that since 2001, the cost of gasoline has increased 70 eggs 63 and bread 33 He broke down the two elements of water rates, the first of which is a fixed bimonthly meter charge used to fund the operations of the utility. Staff has proposed no change to the meter charge until 2011, at which point it would increase annually based on the Consumer Price Index (CPI). The second component of the water rate is usage based and staff has proposed changing from a three to four tier system, with tier 1 using 0 -250 gallons of water per day and tier 4 using over 750. In an effort to encourage conservation, tier 1 users would purchase water at the wholesale rate, minus adjustments for pumping of the City's own groundwater, totaling $1.82 per CCF. Tier 2 users represent the average residential user and would pay the adjusted wholesale rate plus a distribution charge equal to the City's cost for pumping and treating groundwater. In addition, staff proposed an annual CPI based sewer rate increase beginning July 2011 as well as a pass through of any rate increases imposed by the provider agencies. He reviewed commercial and irrigation rates, which would increase from $1.63 to $2.16 per CCF for the former and an average of $1.75 to $2.29 for the latter. The current irrigation rate structure utilizes a peak and off peak system, but staff found the off peak cost to be so low that it offered no incentive for users to manage water use. This is where the greatest discretionary reduction can take place and it is hoped that the new rate will help to encourage conservation. Councilmember Sullivan questioned and confirmed with Mr. Smith that commercials rates are not tiered due to the wide variety of users. The Fiscal Officer also confirmed, explaining that residential tiers are based on averages that are just not discernable in commercial applications. Mr. Smith reviewed projected bill increases, which would mean an average monthly increase of $2.70 to $8.20 for residential users, $7.95 to $50 for commercial users, and $50 to $200 for commercial irrigation users. He stressed that a relatively small percentage of revenues are realized by the City, who in fact controls only a very small portion of the water rate. He also compared the proposed rates to those of adjacent cities, all of whom are significantly higher. He provided a summary of the proposed low- income and senior discounts, stating that most agencies abandoned their programs after the passage of Proposition 218, which dictates that one class of ratepayers cannot subsidize another. In order to continue that program, the City must subsidize that $700,000 annual cost with General Fund monies. The current program offers seniors age 62 and over a 20% discount and low- income families a discount of 30 with no limit on meter use. The practice would allow for very large houses using large amounts of water to use that senior discount. Staff does not believe that to be the intent of the program and has proposed increasing the minimum age to 65 for new participants and only allowing both senior and low- income households to utilize the discount if they keep within the first 2 tiers. No discount would be offered on the bill's sewer portion, as the City must reimburse itself as well as DSRSD and the City of Livermore for that cost. The proposed changes would reduce the current subsidy by about 50% and maintain the program at a viable level. Mr. Smith stated that in order to keep rates down, it is important to encourage regional water and sewer districts to use their rate stabilization reserves and increase operational efficiencies. He said Pleasanton has been able to do so for the last 9 years and continually encourages others to do the same. He encouraged residents to attend local district budget meetings during their rate increase proposals in order to share their feelings. City Council Minutes Page 18 of 22 April 6, 2010