CITY COUNCIL REGULAR MEETING AGENDA PACKET 2-17-26

Page 2 of 10 Alameda County that allow sewage flows from their Castlewood Service Area to be transported through the City’s collection system for treatment at DSRSD. On June 17, 2025, the City Council approved the City’s 2025 Sewer System Management Plan (SSMP). The SSMP is a living document that guides management of the City’s sewer program and is required by the State Water Resources Control Board (SWRCB). The SSMP has identified that the City’s resources are currently insufficient to implement its program properly and recommends improvements to operation and maintenance (O&M) activities to reduce the risk of sewer system overflows. As a supplement to the SSMP, the City also developed a long- term sewer Capital Improvement Program (CIP) that identifies infrastructure needs over the next 20 years. The City Council approved the long-term sewer CIP on November 4, 2025. To ensure financial sustainability during the implementation of its SSMP, the City has contracted with a firm specializing in utility rate work to conduct the 2026 Sewer Rate Study (Rate Study). The goal of the Rate Study is to establish cost-based, fair, and legally defensible rates and connection fees to support the City’s sewer program. The objectives of the Rate Study are: • Prepare a five-year financial plan (FY26 through FY30) to meet economic targets and determine revenue needs. • Conduct a cost-of-service analysis based on the most recent data and customer use characteristics. • Develop a four-year sewer rate schedule for FY27 through FY30. Note that new rates would go into effect on January 1, 2027, for FY27 (mid-term), and then on July 1 for the beginning of each following fiscal year. • Develop updated sewer connection fees for 2027 that will be annually increased by the consumer price index (CPI). • Document the proposed rate development process in a report. DISCUSSION The first step in the Rate Study is the development of a financial plan, which serves as a comprehensive strategy to ensure the City’s sewer enterprise is financially sustainable and sufficient. The financial plan outlines the projected revenue required from sewer rates over a 5- year study period to cover the full scope of operational and capital costs associated with the sewer program and meet financial performance targets. The key components of a financial plan include: • Cost Analysis: A thorough assessment of the sewer program expenses, including operations, maintenance, staffing, infrastructure upgrades, and other essential functions. Note that the financial plan assumes a full pass-through of treatment rate revenues to cover expenses for wastewater treatment services provided by DSRSD and the City of Livermore. • Revenue Requirements: The determination of the total amount of funding required to meet these costs, while also providing for future contingencies. • Long-Term Financial Stability: A strategic approach to ensuring the sewer program remains financially healthy with adequate reserves to address future challenges and Page 98 of 144