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BACKGROUND The Zone 7 Water Agency is the City's wholesaler water provider. Zone 7 supplies treated drinking water to retailers serving approximately 220,000 people in Pleasanton, Livermore, Dublin and, through special agreement with the Dublin San Ramon Services District, to the Dougherty Valley area. Zone 7 also supplies untreated water for irrigation of 3,500 acres, primarily for South Livermore Valley vineyards, and provides flood protection to all 425 square miles of eastern Alameda County The City of Pleasanton purchases treated drinking water from Zone 7 and distributes it to approximately 22,000 residents and business. The Zone 7 water rate is provided to the City and is a direct pass-through to the City's customers. Government Code §53756 (AB 3030 [2008]) permits the City to automatically pass-through Zone 7's water rates. The setting of this rate is not within the control of the City and is subject to change at the beginning of each year. The current Zone 7 rate for Pleasanton customers is $3.61 per CcF. This is a blended rate of the Zone 7 fixed and variable rates for the City, with 42.5 percent of Zone 7 costs fixed for Fiscal Year 2022. On September 7, September 21, and October 19, 2022, the Zone 7 Board of Directors held public meetings during which Zone 7 staff discussed various water rate scenarios. Zone 7 staff recommended a 4-year rate schedule for calendar years 2023, 2024, 2025 and 2026. The Zone 7 Board will revisit the rate schedules for calendar years 2025 and 2026, through a public process, with any changed rates adopted by November 2024. DISCUSSION On November 16, 2022, the Zone 7 Board approved multi-year wholesale treated water rate increases that go into effect on February 1, 2023; these revenue rate adjustments are 5.5 percent per calendar year for the next four years commencing on February 1, 2023. Zone 7's November 16, 2022, staff report (Attachment 3) on the proposed rates includes three rate scenarios; Zone 7 staff presented the three scenarios from which the Zone 7 Board adopted scenario 4B. A summary of the adopted rate scenario is as follows: Scenario 4B — 5.5 Percent Rate Revenue Adjustments • Includes revenue adjustments of 5.5 percent for the next four years • Includes funding for the following items: o Continued participation in water supply reliability projects (Los Vaqueros Expansion and Delta Conveyance Project) o Annual debt service and annual operations and maintenance costs for the Chain of Lakes Well PFAS Project o $2.9 million in capital funding and annual operations and maintenance costs for the Stoneridge PFAS project. The remaining capital costs will be funded from project deferrals and reserves, and will not be replenished through water rates. o Replenishment of Zone 7's Water Enterprise Operations Fund reserves at target level by the end of the four-year rate cycle and Zone 7's Water Page 2 of 4