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income residents; this will be incorporated into the second phase of the rate study to be completed. Due to the current sewer enterprise operations and reserves, the sewer rate increases are being limited to cost-of-living adjustment only. The City is currently updating the Sewer Master Plan with completion anticipated by summer 2024 that will outline future major maintenance projects that will be reviewed to determine if rate increases will be required in the future. Per Proposition 218 requirements, water agencies must develop a nexus between their rates and their costs and document their methodology in an administrative record (report/study). A complete copy of the full and final Water and Recycled Water Rate Study prepared by Raftelis, dated August 4, 2023, is provided as Attachment 1. Audit and Review of Accounts and Expenditures The first step in analyzing the current water and sewer rates was to review and audit existing customer accounts to determine if there were any differences in the amount of water provided compared to the volume charged for in the billing system; this is a routine operating procedure for a utility. Staff also reviewed existing expenditures to determine if there were areas where costs could be reduced or economies of scale could be realized prior to developing the expenditures for the rate analysis. Proposed Water Rate Increase The proposed water rate increase is intended to accomplish several critical outcomes.. • Immediate/near-term essential system upgrades, including pipe expansion projects (Stoneridge Drive, Bernal Avenue and Sunol Boulevard) and a temporary booster pump that were approved by the City Council and are underway • Funding to plan for the water supply alternative project design work — $2 million/year is budgeted toward a local solution for the 3,500-acre feet of groundwater the City is currently purchasing from Zone 7 • Funding to pay for the additional purchase of water from Zone 7 over the next 2-3 years, while the water supply alternative is constructed • Augmented staffing with three positions to manage, plan and implement solutions for the water distribution system • Replenishing the fund reserve to meet the policy target of 35 percent in Fiscal Year 2025/26 and restoring the enterprise fund's financial position to maintain adequate debt coverage that allows the City to resolve the water supply alternative project and projects identified in the Water System Master Plan. To proactively address these criteria, the city contracted with Raftelis to initiate a water rate study. Aligned with established best practices, the rate study process includes three elements: a financial plan, cost of service, and rate structure. Page 7 of 19