CITY COUNCIL WORKSHOP AGENDA PACKET

Page 1 of 10 Item #2 CITY COUNCIL AGENDA REPORT March 4, 2025 Public Works - Utilities Division TITLE: ACCEPT THE WATER ENTERPRISE FINANCIAL ANALYSIS AND APPROVE THE ENHANCE SCENARIO SUMMARY In 2023, the City conducted a water rate study, which resulted in Council approval of a 30 percent water rate increase in January 2024 and a 12 percent increase in 2025. During the study, staff identified the need for a comprehensive Water System Management Plan (WSMP) to guide future water rate studies. Following this, on January 21, 2025, the City Council adopted the WSMP, a long-term planning document that provides a detailed assessment of the City’s water system assets, capital improvement needs, and operations and maintenance requirements over the next 20 years. The WSMP serves as the foundational document for this rate study. To support this effort, on September 3, 2024, the City awarded a contract to Water Resources Economics, LLC (WRE) to conduct water and sewer rate and connection fee studies. WRE has now completed a financial plan analysis which is the first step in a three-step process. This step is focused on the revenue increase that is needed to support WSMP CIP implementation; it is not adoption of water rate increases as that is the final step which will be considered by the City Council in June. This report presents the analysis results based on which three primary scenarios were developed: Stabilize, Enhance, and Accelerate. Staff, and the Pleasanton Water Advisory Group, recommend the City Council accept the financial analysis findings and approve the Enhanced scenario as the preferred approach for the 2026-2029 water rate study. RECOMMENDATION Accept the Water Enterprise Financial Analysis and approve the Enhance scenario. BACKGROUND A financial plan within a water rate study is an essential tool for ensuring the long-term sustainability, reliability, and affordability of a municipality’s water system. It evaluates the financial health of the water utility and determines necessary revenue adjustments—typically through rate changes—to cover operational, maintenance, and capital improvement costs. Key Objectives of the Financial Plan: • Revenue Sufficiency – Ensures the utility generates adequate revenue to cover daily operations, debt service, and capital investments while maintaining financial stability • Capital Planning & Infrastructure Investment – Identifies funding strategies for necessary system upgrades, replacements, and expansions to maintain service reliability and regulatory compliance • Cost-of-Service Analysis – Allocates costs among customer classes (residential, commercial, industrial) to ensure fair and equitable rate structures Page 3 of 27