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Water Rate Cost-of-Service Study Section 1. Executive Summary HF&H Consultants, LLC | July 8, 2025 | Page 1 of 53 Section 1. Executive Summary BACKGROUND The City operates and maintains a potable and recycled water distribution system to serve its water users. It is a complex system with varying topography and separate but interconnected pressure zones. As of this study, the City serves 24,327 connections within its service area. The City’s water service area covers approximately 17 square miles. The City purchases all its potable water from the San Francisco Public Utilities Commission (SFPUC) Regional Water System (RWS) and is a member of Bay Area Water Supply and Conservation Agency (BAWSCA). The City has also been supplying recycled water to its customers since 2000. As a member of Silicon Valley Clean Water (SVCW), the City receives disinfected tertiary-treated, recycled water for reuse. The infrastructure network includes 280 miles of water mains, 15 active storage reservoirs, 12 booster pump stations, and various assets, such as water meters, fire hydrants, and valves1. The SFPUC delivers treated wholesale water to the City from its RWS. This water is delivered through thirteen master meter locations from the SFPUC’s transmission pipelines. From these connections, the City reduces pressure and pumps to deliver water to its customers. The water rates in this study were developed using rate-making principles set forth by the American Water Works Association (AWWA) in Principles of Water Rates, Fees and Charges (M1 Manual). This Manual’s cost-of-service principles endeavor to distribute costs to customer classes (also referred to as classes) and to individual customers in proportion to customers’ impacts on the water system. Pursuant to the M1 Manual, rate studies generally contain three elements: (1) a revenue requirements analysis, which determines how much revenue is needed from rates to recover a utility’s projected costs; (2) a cost-of-service analysis, which allocates the revenue requirements to the rate components;2 and (3) a rate design analysis, which determines any modifications that are required to align the rate structure with the cost of service. Rate studies include a revenue requirement analysis. A cost-of-service analysis is typically only conducted periodically. It is recommended that a cost-of-service analysis be conducted at least every five years to account for any material differences in the costs of providing service and in the water usage among customer classes, which will affect their respective shares of the cost-of-service. The City last conducted a cost-of-service study in 2023. The City requested HF&H to conduct a cost-of-service study to analyze a period of ten years (Study Period). While three years of analysis (FY 2025-26, FY 2026-27, and FY 2027-28) are shown in this report, the projections from the Study Period are included in Appendix A to provide a longer term analysis. The City is electing to set water rates for three years 1 2020 Urban Water Management Plan City of Redwood City published June 2021. 2 This study’s cost-of-service analysis utilizes a uniform rate structure methodology, following cost allocation principles supported in the AWWA M1 Manual. The approach allocates revenue requirements based on overall water demand, capacity needs, and customer service functions, with adjustments made to address the unique characteristics of the City’s water system. Further details on these adjustments are provided in Chapter 4. ATTY/RESO.0109/CC RESO WATER RATES - EXHIBIT A REV: 11-05-25 MI