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Proposed Water Rate Increase Background The City does not own and operate a water treatment plant. Instead, the City relies on two primary sources for its water supply to its customers: Local groundwater from four City -owned deep wells accounts for 18 percent or approximately 3 million gallons per day (mgd) of the water system's average daily demand of 17 mgd. Water purchased from Zone 7 of Alameda County Flood Control and Water Conservation District (Zone 7), accounts for the remaining 82 percent or 14 mgd of the average daily demand. The cost of water from Zone 7 and the local groundwater represent approximately 75% of the City's cost to deliver water to its customers. The last time the City increased water rates was January 1, 2001. Since that time, Zone 7 has increased the cost of water purchased by the City approximately 55.25% and the consumer price index has increased approximately 20.5 The remaining 25% of the cost of water delivered to a customer includes pumping charges (electricity), the cost of chemicals, repair and replacement costs of the water system infrastructure, debt service payments for system capital facilities built over the past twenty years, and labor costs. These costs have continually risen since January 1, 2001. If the rate payers were to absorb the Zone 7 rate increases of 55.25% since 2001 and the 20.5% increase in the cost of materials, supplies and labor; the increase in water rates to the average rate payer would be approximately 26.36% as of August 1, 2010. However, with the reduction in costs and increases in revenues as a result of staffs auditing and streamlining efforts, and restructuring of water rate classifications and tiers, the overall water rate increase is approximately 12.57% depending on customer classification and water consumption. Vineyard Corridor Costs and a Fourth Tier Water Rate for Single Family Customers To date, the City has constructed several water related projects in the Vineyard Avenue Corridor Specific Plan area including over sizing a water storage tank from 1.0 million gallons to 1.4 million gallons to accommodate the increased demand put on the existing water system by large residential customers. The water improvements for the Vineyard Avenue Corridor include the following: Water Storage Tank $3.3M Water Improvements 1.3M Water Storage Reservoir Access Road 1.8M Water Pump Station 2.7M Water Turnout No. 6 .4M Total Water Infrastructure $9.5M Page 3 of 20