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water and sewer enterprise funds to implement necessary water distribution system improvements in the near-term. By State law, delivered water is charged at the cost of service so no profit is made by the enterprise; any revenues not expended at the end of the fiscal year are applied to future years' costs. BACKGROUND The City is a water retailer that operates and maintains a water distribution system to deliver water to city residences and businesses for domestic and irrigation uses and other uses such as firefighting. Alameda County's Zone 7 Water Agency is the Tri- Valley's water wholesaler that procures water from the state and produces water from its regional wells, which it sells to Pleasanton and other Tri-Valley water retailers for distribution. Pleasanton is a unique retailer in that in addition to buying water from Zone 7, it also has an annual groundwater pumping quota of 3,500-acre feet from its own local wells. In prior years, 3,500-acre feet is approximately 20-25 percent of all water delivered within Pleasanton. The City does not own or operate a wastewater treatment plant. A majority of the City's wastewater is treated by Dublin San Ramon Services District (DSRSD), with the Ruby Hill Project Area treated by City of Livermore. The current average dry weather flow (ADWF) from the City to DSRSD is approximately 6.3 million gallons per day (mgd). A small portion of the City's wastewater flows, which originate from Ruby Hill, are conveyed to the City of Livermore water reclamation plant. The flow from Ruby Hill to the City of Livermore's plant is approximately 0.25 mgd ADWF. Once the City's sewer is secondarily treated either at the facilities at DSRSD or the City of Livermore, the treated sewage is stored and transported through the facilities owned and operated by the Livermore Amador Valley Wastewater Management Agency (LAVWMA) to the East Bay Discharge Authority (EBDA) outfall line into the outer Bay, if not used for recycled water. Previous Rate Studies In 2010, the City approved a combined water and sewer rate increase of 7.27%, which was followed by annual increases in water and sewer rates based on inflation as defined by the change in the Consumer Price Index (CPI) for five years. In 2015 the City approved water and sewer rates to be annually increased by the change in CPI for five years —this approach did not account for growth in the community (new development from 2015 to 2020 whereby the City's population grew by approximately 5,000 or 6.6 percent) or the ability to address necessary but not funded system improvements. The planned 2019 rate study was delayed due to COVID-19, after which the rate study was put on hold when the PFAS treatment and well rehabilitation project was paused to explore water supply alternatives, such that there were no water and sewer rate increases for the City for three years (2021, 2022 and 2023). Financial Position of Water Enterprise Fund The City is responsible for ensuring that the water and sewer enterprises remain fiscally solvent and that appropriate reserves are in place to fund system maintenance, repair, and replacement obligations. Currently, funding for the water distribution system is inadequate which has necessitated the use of reserves to both operate the system and make necessary infrastructure improvements to have the pressure and capacity to Page 2 of 17