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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 the 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 percent, 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. During this period, the Council adopted a resolution to not apply the CPI increase to both the water and sewer rates for one year due to the continuation of the Zone 7 temporary surcharge for another year. 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 (2020, 2021 and 2022). 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. While the sewer enterprise is adequately funded, funding for the water distribution system is inadequate which has necessitated the use of reserves to both operate the water system and make necessary infrastructure improvements to have the pressure and capacity to deliver sufficient water supply during peak demand periods. Depletion of the water reserves is unsustainable for the operation of the enterprise fund, to the point of insolvency. This situation is problematic because it creates operational risk when reserve funds are not available to do necessary repairs or larger projects and from a policy perspective because it does not meet the City's approved reserve target of 35 percent. This reserve deficit for both the water and recycled water funds is depicted in Figure 1 below. Page 3 of 19