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Please note that there is a 120-day statute of limitations for challenging all water rates should the proposed adjustments be adopted. Page 2 of 8 • Annual increases to the water service charges that are billed bi-monthly to multi-family customers per meter size, to become effective January 1, 2026, January 1, 2027, and January 1, 2028. • Annual increases to the water service charges that are billed monthly to commercial customers per meter size, to become effective January 1, 2026, January 1, 2027, and January 1, 2028. • Modifying and updating the current water use rates charged to all customers so that all customers will pay a uniform rate per unit beginning January 1, 2026. The City Council will also consider revising the existing Water Enterprise reserve target to escalate the portion of the capital reserve component according to the year-over-year change in the Construction Cost Index for the San Francisco Bay Area. REGULAR SERVICE There are several reasons the City is proposing updated water rates and water rate increases. First, the City’s water supplier, San Francisco Public Utilities Commission (SFPUC) has increased the wholesale cost of water by 11% since FY 2023-24 and is projected to increase an additional 2.2% by FY 2027-28. Second, the City plans to spend an average of $13.6 million per year on capital improvement projects over the next 5 years to expand its recycled water facilities and to increase funding to address its distribution system replacement program. Finally, costs related to employee salaries and benefits, materials, and utilities have also increased and require additional rate revenues to fund. Additionally, the City’s current reserve policy requires that the target reserve balance is made up of an operating reserve component and a capital reserve component. The operating reserve component is 25% of annual operations and maintenance (O&M) expenses. The capital reserve component is currently $2 million to provide working capital for pay-as-you-go construction projects. The City is proposing to revise the existing policy to escalate the portion of the capital reserve component according to the year-over- year change in the Construction Cost Index for the San Francisco Bay Area, as provided by Engineering News Record. This change to the reserve policy will help ensure that the City’s capital reserve remains adequate as capital costs increase with inflation, over time. The proposed water use charges transition all customer classes to a uniform volumetric rate, eliminating tiered rates for single-family customers. After reviewing the City’s costs of service, it was determined that a uniform rate is the best way to proportionately allocate the City’s costs based on current, available data. Single family and multi family customers with an Accessory Dwelling Unit (ADU) and Junior Accessory Dwelling Unit (JADU) will be assessed their respective service and water use charges. If a residential customer has a separate, additional meter for their ADU or JADU, the ADU or JADU would be charged as a separate and additional single family or multi family customer, corresponding with the customer’s primary customer class. ATTY/RESO.0072/CC RESO INITIATING PROP 218 PROCESS TO ADOPT WATER RATES - EXHIBIT A REV: 07-09-25 MI