Agda Pkt 2025.07.21 Joint SA PFA

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Page 2 of 11 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org increasing costs and to ensure sufficient reserves for emergencies and future replacement of infrastructure. On December 18, 2023, the City Council last approved water rate increases for two years, starting February 1, 2024 by 8% on average and starting January 1, 2025 by 7% on average. At the time the rates were adopted, it was determined that the full costs related to the recycled water system could not be fully assessed for inclusion in the rates until a Recycled Water Master Plan (RWMP) was completed. The RWMP assesses the existing condition of the recycled water system, evaluates necessary expansions of the system, and develops a plan of potential capital improvement projects (CIP) needed in the future and their estimated costs. Since this document was not completed at the time, the water rates were updated in 2023 to include all available and known costs related to the water and recycled water system. No new water rates were proposed for 2026 with the understanding that the rates would need to be re-evaluated once the draft RWMP was completed, including associated anticipated CIP costs. With the expected RWMP and increasing operating costs, an analysis of the City’s Water Enterprise budget and rates was necessary to ensure the City’s water rates sufficiently recover their appropriate expenses. As a result, on November 4, 2024, the City Council approved an amendment for HF&H Consultants, LLC (HF&H) to conduct a second phase of the water rate study. The Water Rate Cost-of-Service Study dated July 8, 2025 is complete and included as Attachment B. ANALYSIS Revenue Required to Fund Water Enterprise (Revenue Requirement) The first component of the Water Rate Cost-of-Service Study was to determine the revenue required to support the Water Enterprise including operation and maintenance costs, capital expenditures, and the cost to purchase water from the SFPUC, which accounts for 44% of the enterprise budget. The analysis included a ten-year study period beginning in FY2025-26, however, updated water rates are only being proposed effective January 1, 2026, January 1, 2027, and January 1, 2028. Over the Study Period, the City’s revenue requirement is driven by increases to water purchase costs and capital improvement expenditures. The City’s water supply source, SFPUC, intends to raise rates from $5.67 per hundred cubic feet (HCF) to $5.80 per HCF for FY 2025-26. Current wholesale water rates of $5.67 per HCF in FY 2024-25 will increase 4.6% to $5.93 per HCF in three years. The City’s capital improvement plans include an average annual expense of $13.6 million over the projection period, demonstrating the City’s priority to continue to invest in its water system. Most of the planned project expenditures are for improvements to the water distribution system (i.e., pipelines), as well as storage and pumping infrastructure. The three-year projections are shown in Figure 1 with FY 2024-25 provided for reference. 6.F. - Page 2 of 111 79