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HF&H Consultants 590 Ygnacio Valley Rd. Suite 105 Walnut Creek, CA 94596 Phone: (925) 977-6950 Web: hfh-consultants.com July 8, 2025 Terence Kyaw Public Works Director City of Redwood City 1400 Broadway Redwood City, CA 94063 Subject: Water Rate Cost-of-Service Study – Final Report Dear Terence Kyaw: HF&H is pleased to submit this cost-of-service report to the City of Redwood City (City). The previous rate study was completed in 2023. The current study makes the following recommendations.  Revenue increases. Rate increases are recommended due to increases in the cost of purchased water from the San Francisco Public Utilities Commission (SFPUC) and the need to fund capital improvements, including ongoing repairs and replacements of aging infrastructure. The cost of SFPUC water is 44% of the annual revenue requirement – the largest single expense. Wholesale water rates are projected to increase 12% from FY 2024-25 to FY 2027-28. In addition, rate increases are needed to allow the City’s Water Enterprise Fund to continue compliance with debt service requirements, to avoid operational cost increases, and to maintain prudent reserve balances. Over the next three years, the recommended revenue increases are 7%, 6%, and 5%.  Single Family Water Use Rate Structure Modifications. The City will be transitioning from a tiered rate structure to a uniform rate structure for Single Family Residential customers. This change in Water Use Charge rates for single family customers means that all customers will now be charged a uniform consumption rate, regardless of the amount of water used.  Drought Rate Revenue Stabilization Rates (Drought Rates). Drought Rates can be adopted as part of the Proposition 218 process. The Drought Rates apply an incremental increase to each unit of water used by the customer. The increase is subject to the level of shortage declared such that a higher level shortage generates a higher Drought Rate so that the City can maintain revenue neutrality during drought conditions when customers are required to reduce water use.  Pass-through Adjustment. We recommend that the City incorporate annual pass- through adjustments of the SFPUC water purchase cost into its water use charge rates. Water use charge rates can be adjusted to track any difference between the SFPUC rates that were included in the analysis and the actual rates adopted each year by SFPUC. ATTY/RESO.0109/CC RESO WATER RATES - EXHIBIT A REV: 11-05-25 MI