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Water Rate Cost-of-Service Study Section 1. Executive Summary HF&H Consultants, LLC | July 8, 2025 | Page 2 of 53 (Recommended Period) and plans to conduct the next rate study to set rates for FY 2028-29 and future years. Since the previous cost-of-service analysis, changes in demand patterns among customer classes have occurred, which affects the factors that are used to allocate costs. The costs to which the allocation factors are applied also changed. Hence, there will be differences between the previous and current cost-of-service analyses. Primarily, the rate structure for single family customers is proposed to change from tiered water rates to a uniform volumetric rate. Adjustments are made to reflect the differences and rates are set accordingly. The cost-of-service analysis proportionately allocates the revenue that is required from rates to the components of the rate structure and to the customer classes. Costs are classified corresponding to the function they serve. Each function’s costs are further allocated to each component of the rates in proportion to the level of service required by customers. The levels of service are related to demand, infrastructure capacity, and customer service. Ultimately, a cost-of-service analysis ensures that the rates yield charges that are proportional to the cost of providing service to each customer. The following discussion summarizes HF&H’s findings and recommendations. REVENUE REQUIREMENTS The revenue requirements were updated to reflect projected customer demands and the costs associated with meeting those demands. The three-year projections are shown in Figure 1- 1 with FY 2024-25 provided for reference. 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)3 to $5.80 per HCF for FY 2025- 26. Wholesale water rates of $5.67 per HCF in FY 2024-25 will increase 4.6% to $5.93 per HCF in FY 2027-28. The City’s capital improvement plan includes an average annual expense of $13.6 million from FY 2025-26 through FY 2029-30, 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. 3 HCF (Hundred Cubic Feet) = 748.052 gallons ATTY/RESO.0109/CC RESO WATER RATES - EXHIBIT A REV: 11-05-25 MI