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Councilmember Olson and Ms. Wagner explained that fixed costs and fixed unit costs are not the same. When fewer units of water are purchased, the fixed cost per unit must increase in order to maintain financial stability. Vice Mayor Brown asked and Ms. Wagner confirmed that the Council could implement both drought rates and penalties. Ms. Wagner introduced the proposed recycled water rates, reminding everyone that recycled water will only be made available to commercial irrigation customers at this time. She explained that all commercial accounts possess 2 meters, one of which measures irrigation use. Staff is proposing an initial rate increase, effective October 15, 2015, from $2.35 to $2.62 or 90% of the potable water rate increase. Additionally, staff is proposing concurrent increases equal to 90% each time potable irrigation water rates increase. She reviewed the proposed sewer rate, which would increase 3% from $24.46 to $25.19. She explained that the city only regulates the local portion of sewer bill, with regional sewer rates attributable to either DSRSD or the City of Livermore that would pass through at 100% should either agency increase their rates. Looking at the combined proposal, a moderate single-family residential user would experience a combined water and sewer bill increase of approximately $10 per bi-monthly billing period. Ms. Wagner explained that the Audit Committee strove to retain discounts where fiscally sustainable. She reminded the Council and public that fair and equitable rate setting prohibits one rate payer from subsidizing another, which means that utility discounts are paid for by the General Fund. The city's General Fund currently contributes an annual subsidy of about $350,000 to the water and sewer utilities. Currently the city offers a 20% discount to seniors age 65 and over, which staff is proposing to reduce to 15%. The city's current low income discount is proposed to remain unchanged at 30%. Both discounts would continue to require that the rate payer not exceed 40 CCF within the 2 month billing period and exclude the DSRSD and City of Livermore portion of the sewer bill. Vice Mayor Brown asked Ms. Wagner confirmed that individuals cannot combine or double up the discounts but that a rate payer who is eligible for both would receive the higher low income discount. Councilmember Pentin stated that the 40 CCF discount threshold seemed rather generous and perhaps outdated. Given the current water restrictions, he questioned whether someone using that much water was truly in need of a discount. Ms. Wagner acknowledged the point. She explained that domestic usage on a typical single-family residential bill falls somewhere between 8 and 10 CCF, with the remainder being used for irrigation. Prior to the most recent fiscal year and aggressive conservation efforts, many rate payers were disqualified from the discount during summer months when irrigation use tends to increase. Due to drought awareness and conservation, the subsidy from the General Fund is actually higher this year than ever before. Councilmember Narum concurred with Councilmember Pentin and inquired about the decision to lower the senior discount as opposed to lowering the threshold. Ms. Wagner explained that staff did not make this option available for consideration by the Audit Committee although in hindsight, it is certainly a wise alternative. Mayor Thorne concurred. Mr. Fialho explained that the Council could still choose to explore this option. However, once the Proposition 218 notice is issued the Council's rate structure options are limited to what is stated in the City Council Minutes Page 9 of 17 July 21,2015