CITY COUNCIL WORKSHOP AGENDA PACKET 4-21-26

Page 2 of 9 service connections. The average dry-weather flow is approximately 6 million gallons per day (MGD). The City has agreements with DSRSD and the City of Livermore (for the Ruby Hill service area) for wastewater treatment, and is a member of the Livermore-Amador Valley Water Management Agency (LAVWMA) for the disposal of treated wastewater. The City also has an agreement with Alameda County, which allows sewage flows from the County’s Castlewood Service Area to be conveyed through the City’s collection system for treatment at DSRSD. Historically, the City has relied on Consumer Price Index (CPI) increases to raise sewer revenue. This approach has not generated the resources needed to adequately maintain and rehabilitate aging infrastructure or keep up with increasing operational and regulatory demands. As a result, operating costs have been withdrawing from the sewer enterprise fund balance every year. With aging infrastructure experiencing higher failure rates and increasing regulatory requirements, it is critical that the City establish a justifiable sewer rate that supports the system's critical infrastructure needs in the coming years and meets State regulatory requirements for managing the sanitary sewer system. On June 17, 2025, the City Council approved the City’s 2025 Sewer System Management Plan (SSMP), a living document required by the State Water Resources Control Board (SWRCB) that provides the framework for managing the sewer program. The SSMP identified the need for the City to establish a complete and comprehensive sewer management program that supports required operations and maintenance (O&M), repair and replacement (R&R), and capital improvement program (CIP) projects to meet the minimum State requirements for effective sewer system management and to maintain compliance with all sanitary sewer regulatory requirements. As required in the SSMP, the City developed a long-term sewer CIP identifying critical infrastructure needs over the next 20 years, which the City Council approved on November 4, 2025. To support financial sustainability during SSMP implementation, the City retained a utility rate consulting firm, Water Resources Economics, LLC (WRE), to prepare the 2026 Sewer Rate Study. The Rate Study will develop cost-based, fair, and legally defensible sewer rates and connection fees that adequately fund the sewer program. Rate Study objectives are: • Maintain financial sufficiency for O&M and CIP needs to implement the SSMP through a five-year financial plan (fiscal year (FY) 2026 - FY 2030) • Develop a four-year sewer rate schedule (FY 2027 - FY 2030), with rates effective January 1, 2027, and then July 1 at the start of each subsequent fiscal year • Align collection rates with cost-of-service principles through an updated cost-of-service analysis • Simplify the rate structure to improve transparency and consistency with peer agencies • Develop updated 2027 sewer connection fees, with annual CPI adjustments • Document the rate development process in a formal report. The City Council reviewed three implementation scenarios on February 17, 2026, and adopted Scenario 1 — Maintain, which provides a balanced approach between near-term improvements and long-term risk. Staff was directed to return for a spring workshop to review Page 3 of 27