Item 23 - Public Hearing to Consider Proposed Water and Sewer Rate Adjustments

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Water and Sewer Rates March 17, 2026 Page 3 customers will continue to pay a lower amount, on average, for sewer service as compared to other Orange County cities such as Huntington Beach, Orange, Newport Beach, Fullerton, and San Clemente (See Exhibit 5). To minimize impacts to ratepayers and provide a gradual transition, the proposed rate plans would be implemented over a five-year period, increasing $7 to $8 per month annually as shown in the table below. $60.42 $64.60 $70.39 $76.73 $83.67 $90.40 $7.62 $10.56 $11.98 $13.18 $14.50 $15.95 $68.04 $75.16 $82.37 $89.91 $98.17 $106.35 Delaying these adjustments would likely require larger rate increases in the future and could further reduce enterprise fund balances, increasing the risk of a downgrade to the City's credit rating. It could also affect the City's ability to implement the existing rates and maintain compliance with Proposition 218 requirements. BACKGROUND AND DISCUSSION The Public Works Agency (PWA) oversees and maintains the daily operations of the City's water and sanitary sewer systems. The water system comprises approximately 480 miles of water main, 21 groundwater wells, seven pump stations, 10 reservoirs with a storage capacity of 49 million gallons, four pressure -regulating stations, and seven connection points to the Metropolitan Water District (MWD). The system has an average daily demand of 30 million gallons from its roughly 45,500 metered service connections. The sanitary sewer system consists of approximately 400 miles of sewer main, 7,000 manholes, 46,000 sewer laterals, and two sewage lift stations. All sewage carried by the City's sewer mains is conveyed to the Orange County Sanitation District for treatment. The cost to keep these critical assets operational and invest in their replacement comes from the water and sewer rates charged to and collected from the community they serve. The California Constitution, via Proposition 218, mandates that all revenue collected from water and sewer charges is solely used for water and sewer operations and infrastructure related expenses. The American Water Works Association recommends as a best management practice that public utilities periodically review and perform cost of service and rate studies every five years to adjust water and sewer rates annually, thereby ensuring rate revenue is sufficient to cover the cost of operating and maintaining public water and sewer systems. The City last performed a Cost of Service and Rate study in 2019. Based on