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for such limited annual increases to occur automatically.' For purposes of modeling the revenues and verifying that this amount of increase will sustain the revenue requirements necessary to operate and maintain the water system, the City assumed a 3% increase annually in CPI. Table 8 presents the estimated Zone 7 Water rate pass thru for the next five years: Table 8 Effective January 1 2010 2011 2012 2013 2014 2015 Zone 7 Rate Pass Thru 9.25% 8.25% 8.25% 7.25% 6.0% 6.5% Effective Zone 7 Water Rate /Ccf $2.02 $2.19 $2.37 $2.54 $2.69 $2.87 Effective City Water Rate $1.82` $1.99 $2.17 $2.34 $2.49 $2.67 *Rate effective August 1, 2010. How Do the Rate Increases Impact Our Residential and Business Customers? The proposed rate increase impacts each customer differently based on the customer's bi- monthly water consumption. The following tables present the impact of the proposed water rate increases on the residential and business ratepayer based on a low, medium and high consumption for a two month period for each customer class. Government Code §53756 (AB 3030 [2008]) permits the City to automatically pass through the increases or decreases in Zone 7's wholesale water charges, as well as automatically adjust for inflation. This new law still requires that the City provide rate payers with notice 30 days prior to such automatic adjustments taking effect. And, this law only allows for such pass through for five years until the need for Council reauthorization. Page 11 of 20