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BACKGROUND The City awarded a contract to Raftelis, Inc. in September 2019 to conduct water and sewer rate studies. City staff and Raftelis, Inc. were expecting to complete the rate studies in summer 2020 but determined to delay the study due to the pandemic and the City's desire to have water rate models include new capital and operating costs associated with Per- and polyfluoroalkyl substances (PFAS) in the City's groundwater supply which were not expected to be known until spring 2021. On September 1, 2020, City Council approved the first amendment to extend the contract date and increase the scope of work to include new capital and operating costs associated with PFAS in the City's groundwater supply. On June 15, 2021, the City Council received a presentation on the Basis of Design Report (BOOR) prepared by Carollo Engineers and approved finalizing the project design. On September 7, 2021, City Council approved a PFAS funding plan after which staff and Raftelis restarted the water and sewer rate study which incorporated $46 million for the rate funded portion of the PFAS project. On October 15, 2021, the City Council approved the second amendment extending the contract date. On December 21, 2021, the City Council approved a third amendment to this agreement to increase the scope to include drought rates and water and sewer connection fees which increased the total contract by $74,000. On September 6, 2022, Council directed staff to pause the PFAS project and to evaluate other water supply alternatives. The rate study was also paused as it included funding for the PFAS project. DISCUSSION Water rates have not been increased over the past three years; however, water sales have continued to decline due to mandatory 15 percent conservation. Additionally, the projected fund balance for the water enterprise fund is below Council-approved reserve levels. Staff is recommending restarting the rate study by updating the water rate model, eliminating the PFAS project funding and including a few needed critical capital projects. This rate study will help the City maintain adequate funding for the operations and maintenance of the water system, replenish the reserves to Council- approved reserve levels, and better position the City to pursue future debt financing. Staff anticipates water rates to be effective January 1, 2024, if approved by the City Council. The tentative timeline is as follows: Date Action April 18 Council consideration of proposed amendment Page 2 of 3