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Water Rate Cost-of-Service Study Section 3. Revenue Requirements HF&H Consultants, LLC | July 8, 2025 | Page 15 of 53 Figure 3-2. Projection Assumptions SFPUC Purchased Water Costs The City is entirely reliant on the SFPUC for its water supply. As a member of BAWSCA, the City’s water supply expenses are driven by two usage-based rates: 1) SFPUC’s annual rate and 2) BAWSCA’s bond surcharge rate 10 . The SFPUC provided notice to increase the previous rate of $5.67 per HCF to $5.80 per HCF beginning July 1, 2025. Further, the SFPUC’s notice forecasted rates would increase to $5.86 per HCF on July 1, 2026, and $5.93 per HCF on July 1, 2027. Beginning in FY 2013-14, the BAWSCA bond surcharge rate was implemented to ensure each agency pays its proportionate share of debt issuance costs, based on water purchased. The surcharge has increased over time as additional bonds have been issued to fund capital projects. Since 1984, the SFPUC’s wholesale rates have been established in accordance with rate- making agreements, which include provisions to annually reconcile projected versus actual expenses and demands. Any differences are carried forward into the following year’s rates. This mechanism helps protect both the SFPUC and the 26 BAWSCA wholesale customers. However, it can also result in annual adjustments that either raise or lower rates, contributing to short-term volatility and amplifying year-to-year rate fluctuations. The rising SFPUC rates and current BAWSCA bond surcharge rate were built into the revenue requirement projections. The cost of SFPUC water is 44% of the annual revenue requirement — the largest single expense — and is charged to the City at a uniform rate, for all water delivered. The impact of these significant increases in wholesale rates on the revenue requirements over the study period cannot be overstated. Other Operations and Maintenance Expenses This cost category includes direct salaries and benefits, materials and services, contract services, debt service, and overhead. These expenses are projected to remain between $21 million and $22 million during the Recommended Period, according to City estimates. 10 The SFPUC also charges a fixed service charge, currently 2% of total purchased water costs, which is not impacted by the amount of water the City purchases. Customer Class FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 General Inflation Per Budget 3.00% 3.00% 3.00% Salaries and Wages Per Budget 4.00% 4.00% 4.00% Benefits Per Budget 4.00% 4.00% 4.00% Construction Cost Inflation Per Budget 3.26% 3.26% 3.26% Utilities Per Budget 7.00% 7.00% 7.00% Interest on Fund Balance 1.00% 1.00% 1.00% 1.00% SFPUC Cost of Purchased Water $5.67 $5.80 $5.86 $5.93 SFPUC Cost of Purchased Water % Per Budget Per Budget 1.03% 1.19% ATTY/RESO.0109/CC RESO WATER RATES - EXHIBIT A REV: 11-05-25 MI