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customers, except Tier 1 of the single-family residential rates, is $0.10 per CcF of added cost for the development of this program. The Recycled Water program is paying for its debt service and operating costs. The proposed recycled water surcharge is $0.01 per CcF for all potable multi-family, commercial, and irrigation customers and $0.06 per CcF for the single-family residential Tier 4 rates. Capacity Expansion The City constructed several water-related projects in the Vineyard Avenue Corridor Specific Plan area to accommodate an increased demand in water volume by large residential customers. Most of these costs will be repaid through fees paid by new housing development in the area. Since the expansion was also related to the high- water consumption of existing citywide residential water customers, the current rate is an additional $0.13 per CcF on the single-family residential Tier 4 rates to cover the expansion cost for the Vineyard Corridor improvements. It was determined that no rate change is needed, and this surcharge on the single-family residential Tier 4 rates will be removed once the loan is paid off. The remaining balance of the Vineyard Corridor improvements loan is approximately $100,000. Proposed Consumption Rates If adopted, the proposed consumption charges per 100 cubic feet (CcF), or per 748 gallons, of water consumed by type of water customer will be effective November 1, 2023. The proposed consumption rates reflect the Zone 7 pass-through rates which are 22 percent of the fixed rate and 100 percent of the variable rate. The proposed rates also include the consumption charges to be effective November 1, 2023 (distribution costs, recycled water surcharge (except Tier 1 of the single-family residential rates), and capacity expansion charges). As indicated, rates are proposed to increase 30 percent effective November 1, 2023, then 20 percent effective January 1, 2025, and then 12 percent for the third year effective January 1, 2026. The Zone 7 rate is subject to changes by the Zone 7 Board. All proposed rate increases effective on November 1, 2023, are included in the public hearing notice, the draft of which is provided as Attachment 2. How Do the Rate Increases Impact City Customers? For water user fees, the study shows the need for a 30 percent water revenue increase effective November 1, 2023; a 20 percent water revenue increase effective January 1, 2025; and 12 percent water revenue increase effective January 1, 2026. The proposed first-year increase impacts each customer differently based on the customer's bi- monthly water consumption. The following tables present the impact of the proposed water rate increases on the single-family residential, multifamily, commercial, and irrigation customers based on a low, moderate, and high consumption for a two-month period for each customer class. Page 8 of 17