4.1. Sewer Rate Adjustment — Chico City Council, September 15, 2026

City Council Agenda Report Meeting Date: 9/15/2026
TO: City Council
FROM: Brendan Ottoboni, Director of Public Works – Engineering RE: Sewer Rate Adjustment – Public Hearing
REPORT IN BRIEF:

On March 17, 2026, and June 16, 2026, Council received comprehensive presentations on a five-year sewer rate update for the City of Chico’s sewer enterprise to address critical financial, regulatory, and infrastructure needs of the Water Pollution Control Plant (WPCP) and collection system. These presentations included a variety of rate scenarios including cash-funded and debt-financed options, as well as varying levels of capital investment. On June 16, 2026, Council made a motion directing staff to initiate the Proposition 218 process, including preparation and distribution of a public hearing notice.

During the protest period staff have continued to receive significant concerns over the proposed rates, notably from restaurants and other commercial classes. Due to sewer fund reserve levels, it was decided to utilize the same billing methodology from the 2022 sewer enterprise study to expedite the current process.

Upon further research of similar agency’s billing methodologies, staff have determined there is no consistent or industry standard sewer billing methodology.

Therefore, staff proposes to continue the public hearing to a future certain date of November 17, 2026. In coordination with the newly hired City Manager, staff will evaluate current billing methodology and present findings and opportunities to ensure sewer cost of service is allocated equitably.

RECOMMENDATION:

The Director of Public Works – Engineering recommends the City Council:

1. Open the public hearing and receive public comment regarding the proposed sewer rate adjustments; and

2. Continue the public hearing to the City Council meeting of November 17, 2026, at 6pm, to allow staff additional time to evaluate current billing methodology and associated rates.

FISCAL IMPACT: Budgeted: Yes Supplemental Required: No
The Sewer Enterprise Study itself is budgeted within Sewer Fund 850. The outcome of a sewer rate adjustment will significantly impact revenues for Fund 850 - Sewer and Fund 851 – Water Pollution Control Plant Capital Reserve.

Sewer Rate Adjustment – Public Hearing
City of Chico City Council Meeting – 9/15/26

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DISCUSSION:

Background
The City of Chico owns and operates a 24-hour, 7-day per week, 365 days per year sewer utility that provides essential sanitation and wastewater treatment services. The City Council serves as the governing board for the sewer enterprise fund, including the adoption of rates for this utility service.

The sewer system consists of approximately 288 miles of pipe, ranging from 4 to 39 inches in diameter, and a Water Pollution Control Plant (WPCP) with a regulated capacity of 8.4 million gallons per day (MGD).

Sewer Fund Financial Condition
The sewer utility depends on two primary funds:
• Fund 850 – Sewer Fund: Covers operations, maintenance, and Capital Improvement Projects. • Fund 851 – WPCP Capital Reserve: Provides debt service coverage, cash flow management, and reserve stability.

Both funds face continuing financial pressures from deferred maintenance, regulatory mandates, construction inflation, and unrealized revenue.

Deferred Maintenance
The WPCP facilities were built in the 1970s with upgrades in the early 2000s and now require major conditionbased improvements. Prior project deferrals have increased risk of failure and potential emergency costs.

As a result, the WPCP’s permitted capacity was reduced from 12 MGD down to 8.4 MGD.

Portions of the City's wastewater collection system are more than 100 years old. During the 2022 sewer enterprise study, a sewer main replacement program was proposed based on a 100-year systemwide sewer pipe replacement cycle. The rates adopted by Council in 2023 funded approximately half of that replacement level, effectively extending the replacement cycle to approximately 200 years.

Reserve Target
Industry best practice is a one-year operating reserve (~$11M). The City’s current reserve is about $4.4M.

This rate proposal builds reserves gradually to achieve a 205-day target within the five-year study period, with a goal of 365 days in the next rate cycle.

Regulatory Compliance
The City’s NPDES permit (CA0079081, Order R5-2022-0033) mandates two major improvements by 2032:
• Effluent Diversion and Northeast Pond Upgrades ($34M) to meet land discharge standards for Biochemical Oxygen Demand (BOD₅), Total Suspended Solids (TSS), and coliform bacteria. • Modified Ludzack-Ettinger (MLE) Upgrades ($8.7M) to enhance nitrate removal through denitrification.

Volumetric Rate Impacts
Prior to 2022 the rate structure was mostly fixed, in 2022 it was shifted to 70% fixed / 30% flow-based rates to promote control of billing usage and conservation. However, the City has observed an average winter water use decrease of 24%, reducing revenue and increasing rate instability.

Other Fiscal Pressures
• Sewer Fund (Fund 850) contributions of $0.5–$1.0M annually to support WPCP expansion loan debt as a result of Development Impact Fees (DIF) not generating enough revenue to cover prior debt service payment obligations.
• Construction cost escalation averaging 5.3% annually since 2020, outpacing general inflation (3.6%). • Customer non-payment rates of 5–10%, equating to $1–$1.8M annually.

Sewer Rate Adjustment – Public Hearing
City of Chico City Council Meeting – 9/15/26

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Prior Council Direction
On November 18, 2025, Council received a report from the Finance Director that the Sewer Fund Reserve balance for FY 25/26 was projected at $4.4 million, significantly less than the $11.4 million forecast. On February 18, 2026, and March 5, 2026, the Finance Committee received presentations on a variety of rate structures and financing options.

On March 17, 2026, Council initially selected Option 1 (Limited Risk CIP, Cash-Funded), then reconsidered that action on May 5, 2026, and directed staff to develop reduced rate increase alternatives. On June 16, 2026, Council selected the Moderate Risk Scenario (Option 4b, cash-funded) and directed initiation of Proposition 218 process, with an annual report to Council on the financial status of the sewer enterprise and implementation of the CIP.

Capital Improvement Program (CIP)
The Sewer Cost of Service and Rate Study Report (Carollo) (Attachment A) identifies sewer system capital needs over the life of this rate study, organized by project driver. An initial (Limited Risk) CIP of $134.5M was proposed at the March 17, 2026, City Council meeting. To reduce sewer rate increase impacts, City Council provided direction to adopt a Moderate Risk CIP which equates to a 5-year total cost to address these capital deficiencies of $106.2M. The project drivers include the following:
• Regulatory Compliance: Projects required under the City’s NPDES permit to avoid penalties and maintain discharge authorization.
• Condition-Based: Replacements prioritized by asset risk, probability of failure, consequence of failure, and useful life. Original 1970’s infrastructure and primary treatment facilities are top priorities. • Capacity: While the need for a new Secondary Clarifier has been deferred to 2033, future rate studies must plan for this major project.

The Moderate Risk Scenario reduces the five-year CIP by approximately $28.3M compared with the Limited Risk Scenario. These reductions lower the near-term rate impact but defer identified infrastructure needs and increase the City's exposure to infrastructure failure, emergency repair costs, and future rate increases. Table 1 summarizes the reductions to the Limited Risk CIP to obtain the Moderate Risk CIP.

Moderate Risk CIP
Project
Driver Project Reduction Comments
Regulatory
Driven
Pond Lining
Project $48M to $34M
Some type of lining project will be required
to meet State Land Discharge requirements,
reduced-scope project cost estimates $34M
Remove
Abandoned Outfall $2.7M to $0 Include in future sewer rate if requested by State Lands Commission Condition
Driven
2027
Sewer Pipe
Replacement
Project
$4.2M to $0
Due to deferred adoption of a sewer rate
increase, staff utilized budget from reserves
and other project balances to support the
2027 Sewer Pipe Replacement Project
2028 – 2032
Sewer Pipe
Replacement
Projects
$21.6M to $16.2M
($5.4M reduction)
In 2022, a 100-year pipe replacement was
proposed. In 2023, City Council voted to
reduce that replacement rate by 50%,
effectively approving a 200-year pipe
replacement cycle. This reduction is in
addition to the 2023 reduction, resulting in a
267 year pipe replacement cycle.

Capacity
Driven
SSMP Existing
User Contribution
$4.3M to $2.15M
($2.15M reduction)
Assumes General Plan build out over next
40 years
Table 1 - Moderate Risk CIP Reductions from Limited Risk CIP Sewer Rate Adjustment – Public Hearing
City of Chico City Council Meeting – 9/15/26

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Proposition 218 Process
The Proposition 218 process provides property owners and customers directly responsible for sewer charges with notice of proposed utility rate changes and an opportunity to submit written protests. If a majority protest, the proposed rate changes cannot take effect.

On July 10, 2026, the City mailed 26,204 public hearing notices (Attachment B) to all customers. Staff identified 20,537 parcels for which the owner of record pays sewer charges and proposes using these parcels to determine whether a majority protest exists. Inclusion of other eligible customers directly responsible for sewer charges would increase the number of protests required, therefore, this approach provides a conservative threshold. A majority protest requires 10,269 valid written protests.

If a majority protest is not received, City Council may approve, modify, or reject the proposed rates. Council may also continue the public hearing to a future specified date. Proposition 218 establishes the maximum rates Council may adopt. Lower rates may be approved, but the noticed maximum rates cannot be exceeded without a new Proposition 218 process.

Proposed Rate Adjustment
The Public Hearing Notice included rates associated with the revenue increase as shown in Table 2. This reflects a cash-funded financing approach. As indicated in the Public Hearing Notice, the FY 2027 rate adjustment would go into effect in November 2026, FY 28 – FY 31, increases will occur in July.

FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
55% 55% 3% 3% 3%
Table 2 - Proposed Sewer Revenue Increase
Public Outreach
The City conducted public outreach throughout the rate study process, including meetings with stakeholder groups and development of a dedicated webpage. The Sewer Rate Study webpage serves as a resource for the public, providing access to the Cost of Service and Sewer Rate Study, Public Hearing Notice, previous City Council and Finance Committee materials and presentations, and video recordings of prior discussions. https://chicoca.gov/Sewer-Rate-Study
The site also includes an interactive sewer bill calculator, allowing customers to see how the proposed rates may affect their individual sewer bill.

Annual Sewer Enterprise Reporting
At the direction of Council, staff will provide an annual report on the financial status of the sewer enterprise and implementation of the CIP. The report will be provided during the annual budget process (April–June) to align with other budgetary information presented to Council.

Sewer Rate Adjustment – Public Hearing
City of Chico City Council Meeting – 9/15/26

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Table 3 identifies the rates publicly noticed for adoption. Rates are detailed in the Sewer Cost of Service and Rate Study Report (Carollo, 2026) (Attachment A).

Customer Class 26/271 27/28 28/29 29/30 30/31
FIXED MONTHLY CHARGE2
Residential
House $32.00 $49.60 $51.09 $52.62 $54.20
Multi-Family $25.60 $39.68 $40.87 $42.10 $43.36
Duplex $28.80 $44.64 $45.98 $47.36 $48.78
Commercial
Bars w/o Dining $32.00 $49.60 $51.09 $52.62 $54.20
Brewery $32.00 $49.60 $51.09 $52.62 $54.20
Car Wash $32.00 $49.60 $51.09 $52.62 $54.20
Dorms $32.00 $49.60 $51.09 $52.62 $54.20
Hospital & Convalescent $32.00 $49.60 $51.09 $52.62 $54.20 Hotels w/o Dining $32.00 $49.60 $51.09 $52.62 $54.20
Hotels w/Dining $32.00 $49.60 $51.09 $52.62 $54.20
Industrial Laundry $32.00 $49.60 $51.09 $52.62 $54.20
Laundromat $32.00 $49.60 $51.09 $52.62 $54.20
Markets/Bakeries $32.00 $49.60 $51.09 $52.62 $54.20
Mortuary $32.00 $49.60 $51.09 $52.62 $54.20
Restaurants $32.00 $49.60 $51.09 $52.62 $54.20
School $32.00 $49.60 $51.09 $52.62 $54.20
All Other $32.00 $49.60 $51.09 $52.62 $54.20
VOLUMETRIC RATES PER HCF3
Residential
House $3.11 $4.82 $4.96 $5.11 $5.26
Multi-Family $3.11 $4.82 $4.96 $5.11 $5.26
Duplex $3.11 $4.82 $4.96 $5.11 $5.26
Commercial
Bars w/o Dining $3.19 $4.94 $5.09 $5.24 $5.40
Brewery $6.53 $10.12 $10.42 $10.73 $11.05
Car Wash $2.46 $3.81 $3.92 $4.04 $4.16
Dorms $2.92 $4.53 $4.67 $4.81 $4.95
Hospital & Convalescent $2.90 $4.50 $4.64 $4.78 $4.92
Hotels w/o Dining $3.12 $4.84 $4.99 $5.14 $5.29
Hotels w/Dining $5.50 $8.53 $8.79 $9.05 $9.32
Industrial Laundry $5.84 $9.05 $9.32 $9.60 $9.89
Laundromat $2.67 $4.14 $4.26 $4.39 $4.52
Markets/Bakeries $6.60 $10.23 $10.54 $10.86 $11.19
Mortuary $6.82 $10.57 $10.89 $11.22 $11.56
Restaurants $6.54 $10.14 $10.44 $10.75 $11.07
School $2.60 $4.03 $4.15 $4.27 $4.40
All Other $3.08 $4.77 $4.91 $5.06 $5.21
Table 3 –Proposed Sewer Service Rates

1. FY 26/27 rates will take effect in November 2026. Increases will occur in July of each fiscal year moving forward.

2. The fixed monthly charge is assessed on a per unit basis for residential customers and per equivalent dwelling unit (EDU) for commercial customers. EDUs are calculated for each commercial customer based on average winter water consumption and customer class.

3. HCF = hundred cubic feet, equal to 748 gallons of water based on average winter consumption. If the property is not metered by CalWater, or lacks sufficient metered data, then the average consumption for the applicable classification will be used to calculate the volumetric portion of the rate. (7.20 HCF for Single Family Residential, 5.50 for Multifamily) Sewer Rate Adjustment – Public Hearing
City of Chico City Council Meeting – 9/15/26

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ATTACHMENTS:

Attachment A: Sewer Cost of Service and Rate Report (Carollo, July 2026) Attachment B: Public Hearing Notice

FINAL DRAFT
2026 Sewer Rate Study
2026 Sewer Cost of Service and Rate
Study Report
July 2026 / FINAL
Attachment A

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CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY i
pw://Carollo//CA\Chico\204548-000000\03 Reports and Studies\'26 Rate Study\2026 Chico Sewer Rate Study Report.docx Contents
SECTION 1 INTRODUCTION 1

1.1 Study Background 1

1.1.1 Rate Update History 2

1.1.2 2026 Rate Study Purpose and Structure 2

1.2 Rate Setting Process 3

1.2.1 Revenue Requirements Component 3

1.2.2 Revenue Requirement Analysis 4

1.2.3 Cost-of-Service Analysis 4

1.2.4 Rate Design and Calculation 5

1.3 Forward-Looking Statement 5

1.4 Existing Rate Structure 5

1.5 Growth and Inflation Assumptions 7
SECTION 2 REVENUE REQUIREMENTS 8

2.1 Capital Improvement Projects 8

2.1.1 CIP Scenarios 9

2.1.2 Financing 10

2.2 Debt Obligations 11

2.3 Financial Targets 11

2.3.1 Reserve Policy 11

2.3.2 Debt Coverage 12

2.3.3 Cash Flow 13
SECTION 3 COST-OF-SERVICE ANALYSIS 16

3.1 Rate Component Allocation 16

3.2 Customer Class Allocation 17

3.2.1 Flow 18

3.2.2 Strength Loadings 19

3.2.3 EDU Calculation 23

3.2.4 Class Units Summary 25

3.2.5 Customer Class Allocation Summary 26
SECTION 4 RATE DESIGN 27

4.1 Fixed Monthly Charges 27

4.2 Volumetric Rates 29

4.3 Rate Summary 30
SECTION 5 BILL IMPACTS 32
SECTION 6 ALTERNATIVE SCENARIOS CONSIDERED 34
Attachment A

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SECTION 7 CONCLUSION 37
Appendices

APPENDIX A ORIGINAL LIMITED RISK CIP

APPENDIX B MODERATE RISK CIP FOR APPROVED RATES
Tables
Table 1 Existing Rate Schedule FY2025/26 6
Table 2 Escalation Factors for Revenue and Expenses 7
Table 3 Escalated Original CIP ($ thousands) 9
Table 4 Escalated Moderate Risk CIP ($ thousands) 10
Table 5 CIP Funding Sources ($ thousands) 10
Table 6 Existing Debt Summary ($ thousands) 11
Table 7 Reserve Balance Forecast Under Existing Rate Schedule ($ thousands) 11 Table 8 Reserve Balance Forecast After Proposed Rate Revenue Adjustments ($ thousands) 12
Table 9 Debt Service Coverage After Proposed Rate Revenue Adjustments ($ thousands) 12
Table 10 Cash Flow Forecast Under Existing Rate Schedule ($ thousands) 14 Table 11 Cash Flow Forecast After Proposed Rate Revenue Adjustments ($ thousands) 15 Table 12 Sewer Expenditures Allocation Factors and Summary (FY 2027) ($ thousands) 17 Table 13 Flow Summary by Customer Class 19
Table 14 Assumed Strength Factors by Customer Class 20
Table 15 Calculated and Adjusted BOD and TSS by Customer Class (lbs/year) 22 Table 16 One EDU Flow and Loadings Calculation (2025) 23 Table 17 Units Summary by Class 25
Table 18 Functional Costs Allocated by Class ($ thousands) 26 Table 19 Recommended Monthly Fixed Charges 28
Table 20 Recommended FY 2027 Volumetric Rates 29
Table 21 Existing and Recommended Monthly Fixed Charge ($/Unit or $/EDU) (FY 2027- FY 2031) 30
Table 22 Existing and Recommended Volumetric Rates ($/HCF) (FY 2027 – FY 2031) 31 Table 23 Bill Impacts Under Existing and Proposed Rates ($/HCF) (2026-2027) 32 Table 24 Alternatively Considered Rates and Charges Schedule – Original CIP (FY 2027) 35 Table 25 Bill Impacts Under Existing and Alternative Recommended Rates – Original CIP ($/HCF) (2026-2031) 36
Figures
Figure 1 Conceptual Overview of the Rate-Setting Process 3 Equation 1 Billed Winter Water Consumption Formula 18
Equation 2 Annualized Winter Water Consumption Formula 18 Equation 3 Flow Adjustment Factor Formula 18
Attachment A

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Equation 4 BOD and TSS Pounds Formula 21
Equation 5 BOD Adjustment Factor Formula 21
Equation 6 TSS Adjustment Factor Formula 21
Equation 7 Commercial EDU Calculation Formula 23
Equation 8 Example Commercial Calculation: Adjusted BOD (lbs/month) 24 Equation 9 Example Commercial Customer Calculation: Adjusted TSS (lbs/month) 24 Equation 10 Example Commercial Customer EDU Calculation Formula 24 Attachment A

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Abbreviations
BOD biochemical oxygen demand
Carollo Carollo Engineers
CIP Capital Improvements Plan
City City of Chico
DSCR debt service coverage ratios
EDU Equivalent dwelling unit. For City of Chico, one Wastewater EDU is assumed as 7.2 HCF per month, 3.46 pounds of BOD per month, and 5.25 pounds of TSS per month.

FY fiscal year
HCF hundred cubic feet
I&I inflow and infiltration
lbs/yr pounds per year
mgd million gallons per day
mg/L milligrams per liter
MOP 27 Manual of Practice 27: Financial and Charges for Wastewater Systems O&M operations and maintenance
PAYGO pay-as-you-go
R&R repair and replacement
SFR single family residential
Study Sewer Rate Study
SWRCB State Water Resources Control Board
TSS total suspended solids
WEF Water Environment Federation
WPCP water pollution control plant
Attachment A

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SECTION 1 INTRODUCTION
The City of Chico (City or Chico) provides wastewater collection, treatment, and disposal service for the residential, industrial, and commercial customers within its service area in Northern Sacramento Valley of California in Butte County. The Chico 2030 General Plan defined the 39.5 square-mile boundary which the latest 2025 Sanitary Sewer Master Plan and 2021 Water Pollution Control Plant (WPCP) Strategic Plan used for planning purposes. The City currently manages and maintains approximately 288 miles of gravity sewer pipes, approximately 4.9 miles of force main pipes, and 18 lift stations. All wastewater that is generated within its service area – approximately 6.38 million gallons per day (mgd) of average dry weather flow and 22.26 mgd of peak wet weather flow – is conveyed to the 8.4 mgd WPCP on Chico River Road.

1.1 Study Background
User rates are intended to collect the necessary revenue to cover operations and maintenance (O&M) costs, pay down any new or existing debt, and pay for capital improvement projects for repair and replacement (R&R), meeting increasing treatment regulation stringency, and supporting capacity expansion. Over the past several years, the City retained Carollo Engineers, Inc. (Carollo) to prepare the 2025 Sanitary Sewer Master Plan and 2021 WPCP Strategic Plan. Those plans included condition assessments and capacity evaluations, as well as a review of capital improvement plan (CIP) projects. One of the outcomes of the Sanitary Sewer Master Plan determined that the collection system’s capacity is insufficient at meeting the maximum flow-depth criteria under peak wet weather flow conditions at City buildout per the 2030 City of Chico General Plan, which can create bottlenecks in the system and potentially cause sanitary sewer overflows. The WPCP Strategic Planning Report has provided the City with information needed to effectively budget for current and future capital and operational expenditures directly related to the City’s WPCP and ensure long-term reliability of the WPCP. In 2021 the City performed a Sewer Collection System Analysis (Ottoboni) that identified the financial need to replace aging collection system infrastructure past its useful life. The Sewer Collection System Analysis document was critical in establishing the City’s Sewer Main Replacement Program.

In August 2025, the City retained Carollo to perform a comprehensive and defensible Sewer Rate Study (Study), inclusive of a financial plan and cost of service analysis. This Study’s deliverables were to:
 Recommend sewer user rates for five fiscal years (FY), 2027 through 2031;  Present the findings in this final report;
 Prepare and conduct a Proposition 218 process, including mailing and a public hearing to adopt a new sewer rate.

This Study was performed prior to the routine five-year update to the last rate study, conducted by a third-party consultant (NBS) in August 2022, which developed rate recommendations through June 30, FY 2027. The Study was performed prior to the routine five-year update due to the financial health of the City’s Sewer Enterprise Fund, in which Capital Reserve balances were not meeting forecasted amounts.

Attachment A

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The previous study resulted in the following adopted changes:
 Defined the average single family residential (SFR) equivalent dwelling unit (EDU) based on flow, pounds of biochemical oxygen demand (BOD), and pounds of total suspended solids (TSS) under average monthly consumption during winter months;
 Determined that multi-family and duplex accounts are less than one EDU and, as a result, should have a lower fixed monthly charge than SFR customers;
 Methodology to calculate the number of EDUs for all commercial customers;  Methodology to calculate volumetric rates based on standard effluent strength factors that follow State Water Resources Control Board guidelines and vary by customer class;  Transitioned the residential rate structure from a flat monthly rate to a fixed monthly charge and volumetric rate;
 Maintained the commercial rate structure of fixed monthly charges based on calculated EDU and volumetric rates based on standard commercial strength factors.

1.1.1 Rate Update History
Prior to the 2022 update, the City had not increased sewer rates in over 10 years. That delay produced insufficient cash flow and reserves to sustain the repair, replacement, and infrastructure improvement programs necessary to maintain the system and support future customers. This challenge is particularly acute given the age of the infrastructure: many of the City’s sewer lines are 50 to 70 years old and, in some cases, more than 100 years old and the City’s WPCP is approaching 50 years old. Furthermore, costs for O&M activities increase under economic uncertainty, rising power and chemical costs, and inflation.

While these expenditures increased, the collected sewer revenue remained largely unchanged, resulting in a net annual loss in cash reserves, which have been drawn down to cover necessary system improvements.

1.1.2 2026 Rate Study Purpose and Structure
To develop updated user rates, Carollo reviewed and updated, as necessary, the previous 2022 study changes and assumptions while maintaining a similar rate structure and calculation approach. This Study included a comprehensive review of the utility’s revenue needs, CIP projects, customer usage characteristics, and additional future drivers of service costs and revenue. The City has significantly drawn down Capital Reserves to fund necessary CIP projects. Therefore, this process included in-depth discussions with Carollo engineers, City engineers, finance and utility staff to strategically build and maintain reserves to avoid recreating the constraints which limited the utility’s ability to meaningfully address systemwide infrastructure concerns.

Based on these analyses, Carollo recommended updates to the City’s sewer rates to adequately recover costs and maintain reserves. This report is organized to:
 Discuss the methodology and assumptions driving the financial plan (Section 1.2);  Identify any financial inadequacy of the City’s existing rate schedule through the Revenue Requirements analysis (Section 2);
 Determine the costs each system function and customer class place on the utility in the Cost-ofService analysis (Section 3); Attachment A

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 Present rate recommendations for FY 2027 through 2031 to adequately recover costs through the rate-setting period (Section 4);
 Identify resulting customer impacts under the recommended rates (Section 5);  Acknowledge the resulting tradeoffs with Chico City Council’s decision (Section 6).

1.2 Rate Setting Process
Rate analyses are typically performed every five years so that revenues from rates adequately fund utility operations, maintenance, and capital investments. Additionally, in California, wastewater rates must adhere to the cost-of-service requirements imposed by California Constitution article XIII D, Section 6 (commonly referred to as Proposition 218) and Article X, section 2. Proposition 218 requires that property related fees and charges, including wastewater Service Fees and charges, do not exceed the reasonable and proportional cost of providing the
service. In addition to Proposition 218
requirements, Article X, section 2 of the
State Constitution, establishes the need
to preserve the State’s water supplies
and discourage the wasteful or
unreasonable use of water.

In addition to adhering to state
requirements, Carollo’s rate-setting
methodology is consistent with industry
guidelines described in the Water
Environment Federation’s (WEF) Manual
of Practice 27: Financial and Charges for
Wastewater Systems (MOP 27).

The cost-of-service analysis presented
within this report consists of the
following three interconnected
processes shown in Figure 1: Revenue
Requirement Analysis, Cost-of-Service
Analysis, and the Rate Design Analysis.

While the process is described in a
linear step by step approach, it is better
understood as an iterative process where
the ultimate objective is to balance revenues with costs in an equitable manner for customers. These three processes will form the basis for the rate analyses presented within this report.

1.2.1 Revenue Requirements Component
Revenue requirements are the summation of expenses or costs for handling sewage to return regulatory approved water to the environment. They are determined on an annual basis, and they include:

Revenue Requirement Analysis
Compares existing revenues of
the City's Sewer Fund to its operating,
capital reserves, and policy driven costs
to establish the adequacy of the existing
cost recovery levels.

Cost-of-Service Analysis
Forecasts wastewater sales based on
historical billings, modifications to
the rate structure, and any regulatory
restrictions.

Rate Design Analysis
The Study presents the basis for
calculating the rates proposed to be
adopted in compliance with local and
state regulations and statutes.

Figure 1 Conceptual Overview of the Rate-Setting Process Attachment A

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 Operations & Maintenance: Salaries and benefits, chemicals, power, vehicles, equipment, supplies, etc. Some costs vary by the volume of treatment such as chemicals and power, but other costs are fixed and independent of volume such as salaries and vehicles.  Capital Improvements and Financing: Design and construction of new and replacement infrastructure, including labor for City employees and fees for consultants and contractors that perform this work, along with debt service payments, bond issuance costs, etc. including debt coverage requirements.
 Financial Policies: Maintenance of financial policies, such as minimum reserve balances, which are supported by user rates.

1.2.2 Revenue Requirement Analysis
There are three sufficiency tests that can be used to define the annual revenue requirement: (1) operating income, (2) debt coverage, and (3) reserves. These sufficiency tests are commonly used to determine the amount of annual revenue that must be generated from a utility’s rates.  Cash Flow Sufficiency Test: Assesses whether revenues exceed expenses and looks for a net positive cash flow at the end of each fiscal year. When there is a cash flow deficit, this test recommends additional revenue. When utilities build and maintain a capital reserve that can be drawn down to delay rate increases, the utility may operate in an annual cash flow deficit so long it remains compliant with other financial targets.
 Debt Service Coverage Test: Assesses a utility’s ability to meet their annual debt service payments.

Bond issuances regularly include covenants requiring the agency to maintain sufficient cash flows to meet annual debt service payments plus an additional amount. Typical debt service coverage ratios (DSCR) range from 1.25 times to 1.50 times annual debt service, depending on the terms of debt instrument issued. The City’s current DSCR target is 1.25 times (1.25x).  Reserve Sufficiency Test: Measures the ability of the rates to meet the City’s minimum and target operating reserve balance based on the reserve policies adopted by the City Council. This reserve target ranges by utility, depending on capital needs and service demands. Prior to this Study, the City did not have a mandated operating reserve target and mitigated some of the need for recent rate increases by drawing down its reserve to fund necessary CIP projects. To prepare for necessary upcoming CIP projects and provide financial security, Carollo recommended the City incrementally increase its operating reserve target to 205 days of O&M expenses by the end of this rate setting period. To minimize rate increase spikes, Carollo proposes a target of 60 days in FY 2027 and FY 2028, 90 days in FY 2029, 180 days in FY 2030, and 205 days in FY 2031 and beyond.

1.2.3 Cost-of-Service Analysis
This step builds a link between the City’s cost of sewer service and the proposed rates for each customer.

After determining the revenue requirement, this step outlines the cost to collect and treat each unit of sewage to serve each customer.

This process takes each item in the system’s budget and allocates the items based on what function is served. For example, some cost items support the ability to treat heavier contamination, while other costs are incurred to provide customer service or to fund infrastructure maintenance. Organizing the budget in Attachment A

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terms of end function creates a nexus between the budget item and the rate. This organization bridges the costs incurred by the City and the unique and varied benefits delivered to each customer.

This Study’s cost of service analysis uses a three-part allocation process:

1. Functionalization: Annual costs are allocated by utility functions, such as flow, BOD strength, TSS strength, fixed costs that do not change in relation to the volume of effluent generated, and customer service costs such as billing administration.

2. Rate Components: Utility facilities are designed and sized to meet cost drivers, such as average treatment demands and the number of connections to the system. These services are the basis for allocating the functionalized costs to cost components.

3. Customer Class: Cost components are distributed to customer classes in proportion to their burden on the wastewater system. The City measures this by the EDU per unit (for residential customers) or per account (for commercial customers). Customer classes are determined by utilizing the State Water Resources Control Board Revenue Program Guidelines Strength Characteristics.

1.2.4 Rate Design and Calculation
The rate design involves developing a rate structure that proportionately recovers costs from customers.

This structure must be resilient enough to handle changing cost and demand scenarios, and flexible enough to meet other unique criteria. By collecting different cost drivers from different rate components, the utility can ideally balance these goals.

The rate calculation is intended to quantify the nexus between the Revenue Requirements and the final rate that customers are charged. This process establishes rates to match the estimated revenue generation with expenditures.

1.3 Forward-Looking Statement
The calculations and forecasts of this analysis are based upon the reasonable projection of existing service costs, customer demands, system operational needs, existing legal agreements, and other similar data provided by the City, as well as Carollo’s best understanding of the City’s system.

If significant changes occur to any of those or the other factors used in this analysis, the City may need to revisit the analysis. These changes could include unexpected inflation, changes to California law, deviation from the projected wastewater demands, or further regulatory actions by the Governor, Legislature, or the State Water Resources Control Board (SWRCB).

1.4 Existing Rate Structure
Prior to the previous rate study in 2022, the City had not updated rates for 10 years and charged a fully fixed bill for residential customers and fully volumetric bill for commercial customers. The previous rate study updated the rate structure to assess both a fixed and volumetric charge component to each customer. This is the basis to the existing rate schedule shown below:

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Table 1 Existing Rate Schedule FY2025/26
Customer Class Fixed Monthly Charges(1) Volumetric Charges (per HCF(2)) Residential
House $28.47 $1.30
Multi-Family3 16.12 1.30
Duplex - 2 Meters 9.22 1.30
Duplex - 1 Meter 18.48 1.30
Commercial
Bars without Dining $28.47 $0.88
Brewery 28.47 2.06
Car Wash 28.47 0.60
Dorms 28.47 0.75
Hospital & Convalescent 28.47 0.72
Hotels w/o Dining 28.47 0.81
Hotels with Dining 28.47 1.63
Industrial Laundry 28.47 1.87
Laundromat 28.47 0.69
Markets/Bakeries 28.47 2.20
Mortuary 28.47 2.66
Restaurants 28.47 2.18
School 28.47 0.64
All Other 28.47 0.99
Notes:
(1) Residential fixed monthly charge is assessed as dollar per unit per month. Commercial fixed monthly charge is assessed as dollar per EDU per month.
(2) Hundred cubic feet (HCF) is equivalent to 748 gallons of water based on average winter water use (December through March) as reported by CalWater. If the property is not metered by CalWater, or lacks sufficient metered data, then the average consumption for the applicable classification will be used to calculate the volumetric portion of the rate. (3) Multi-family is defined as structures with adjoining, or common walls. All others shall be single-family (except duplexes). (4) One EDU is equal to the average wastewater strength and flow from a typical residential home.

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1.5 Growth and Inflation Assumptions
The model assumes growth and inflation factors that impact the revenue and expenses projected through the duration of the Study. Therefore, all recommended rate increases are calculated in addition to projected revenue and anticipated cost increases. The model budget includes:
 Non-Operating Revenue: Revenue not generated through user rates (Application fee, maintenance fee, in-lieu petition fee, industrial waste test fee, rental lease income).  Transfer: $1M annual transfer out until the end of existing debt payment (FY 2030).  Uncollectable Debt: Assumes 10.0 percent non-paying customers in FY 2027 and 3.0 percent in FY 2028 and beyond.

The City currently projects that its number of sanitary sewer accounts will increase by approximately

1.2 percent annually throughout the duration of the five-year study period (FY 2027 through FY 2031), a cumulative increase of 2.53 percent. City staff provided baseline revenue and expense data which was escalated by the type of expense. Based on current knowledge of the market, Salaries & Benefits are escalated 5.0 percent annually and all other O&M expenses reflect an annual 3.0 percent inflation factor through the Study duration. Table 2 summarizes the modeled escalations for revenues and O&M expenses assumed for the revenue requirement.

Table 2 Escalation Factors for Revenue and Expenses
Escalator Escalation Factor
Account Growth 1.2% (Determined by staff estimates)
Non-Operating Revenue 1.2%
Salaries & Benefits (including staff in Funds Administration and Development Engineering)

5.0%
Utilities (Insurance, Fuel, Electric, Natural Gas, etc.) 3.0% General O&M (all other O&M expenses) 3.0%
Uncollectable Debt (% of Sewer Service Fee Revenue) 10.0% (FY27) then 3.0% indefinitely Attachment A

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SECTION 2 REVENUE REQUIREMENTS
The revenue requirement analysis is a comprehensive test of a utility’s fiscal health, scrutinizing the adequacy of current revenues and setting the basis for rate planning. It reviews the utility’s revenues, expenses, debts, and reserve policies, assessing the viability of each metric going forward. Where cash flow and balances are insufficient, the revenue requirement analysis determines the additional cash flow needed to meet all funding goals.

The revenue requirement forecast is derived from the City’s financial budget, including major cost components, production costs, personnel costs, O&M, and rate supported debt service requirements and capital outlay. Policy requirements are also considered and used to assess revenue sufficiency.

The City provided budgeted revenues and expenditures for FY 2026 along with actual revenues and expenditures for FY 2025. Other financial information included detailed cost projections and allocations for general and administrative and support costs, actual and projected fund balances, and other pertinent financial information.

Based on the financial sufficiency tests described in Section 1.2.2, the revenue requirement analysis determines if the City must increase system revenues to meet its ongoing obligations. If revenues are found to be insufficient to meet debt obligation (debt service coverage test) and/or reserve policies (reserve sufficiency test), revenues must be increased to achieve the higher of the needs.

The revenue requirement recommendations presented within this report are based on best available information as of the writing of this report.

2.1 Capital Improvement Projects
Along with funding day-to-day operations, the City must continually invest in the utility’s infrastructure to maintain the system’s efficiency, reliability, ability to meet regulatory requirements, and add capacity to support future customers. The CIP includes a variety of capital projects that are required for necessary R&R to existing system assets, meeting regulatory requirements, or adding capacity.

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2.1.1 CIP Scenarios

2.1.1.1 Original CIP
The 2021 WPCP Strategic Plan identified a financial need to replace aging collection system infrastructure past its useful life to ensure long-term WPCP reliability and regulatory compliance. The 2025 Sanitary Sewer Master Plan determined that the collection system’s capacity is insufficient at meeting the maximum flow-depth criteria under peak wet weather flow conditions at City buildout, which can create bottlenecks in the system and potentially cause sanitary sewer overflows. The 2021 WPCP Strategic Plan and the 2025 Sanitary Sewer Master Plan were conducted by Carollo as a third-party engineering consultant to identify system needs.

Table 3 summarizes the original CIP, escalated throughout the rate-setting period by 6.0 percent annually, which results in an approximate $134.5 million five-year CIP. The full 10-year line-item CIP is provided in the Appendix.

Table 3 Escalated Original CIP ($ thousands)
Project FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Condition-Driven $6,395.6 $6,375.9 $12,382.8 $23,368.1 $18,106.0 Regulatory-Driven 545.7 160.9 6,834.8 4,770.5 50,944.5
Capacity-Driven 864.6 890.6 917.3 944.8 973.2
TOTAL ESCALATED CIP $7,805.9 $7,427.3 $20,134.9 $29,083.4 $70,023.7 Notes:
(1) Totals may not tie due to rounding.

2.1.1.2 Moderate Risk CIP Recommendation
To minimize rate-payer burden, Chico City Council tasked the utility to identify CIP projects eligible to be reduced or postponed within an acceptable level of risk to reliable service. The public discussion differentiated utility risk (regulatory compliance and ability to provide service) from financial risk (debt interest burden and higher cost of future projects due to inflation). City staff recommended the following reductions to establish a moderate risk CIP which eliminates or postpones $29.6 million of capital projects:
 Identified other internal funding (reserves and project balances) to support the FY 2027 sewer pipe replacement in FY 2027;
 Reduce budgeted amount of sewer pipe replacements in FY 2028-2031, this is in addition to the 50 percent reduction passed by the City Council vote in 2022. In 2022, staff presented to Council a sewer pipe replacement budget to replace sewer pipes every 100 years, Council directed staff to reduce this by 50 percent resulting in the assumption that each pipe will be replaced every 200 years.

The direction provided by Council in 2026 was to further reduce the budgeted amount by 25 percent, therefore the estimate used for this Study is that each sewer pipe in the system will be replaced every 267 years;
 Cut Sanitary Sewer Master Plan Existing User Contribution Projects by 50 percent, results in an estimated build out over the next 40 years as opposed to the initially proposed 20-year horizon;  Reduced scope and project costs for the required pond lining project, which is required to comply with the Land Discharge set forth in the City’s 2022 NPDES Permit; Attachment A

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 Defer abandoned outfall removal until required by State Lands Commission.

The revenue requirement analysis and resulting rate recommendations are based on this moderate risk CIP. Table 4 summarizes the moderate risk CIP, escalated throughout the rate-setting period by

6.0 percent annually, which results in an approximate $106.1 million five-year CIP. The full 10-year lineitem CIP is provided in the Appendix.

Table 4 Escalated Moderate Risk CIP ($ thousands)
Project FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Condition-Driven $1,886.8 $5,010.0 $10,975.9 $21,919.0 $16,912.0 Regulatory-Driven 545.7 160.9 6,171.0 2,000.0 38,114.4
Capacity-Driven 458.8 472.6 486.8 501.4 516.4
TOTAL ESCALATED CIP $2,891.3 $5,643.5 $17,633.7 $24,420.4 $55,542.8 Notes:
(1) Totals may not tie due to rounding.

2.1.1.3 Highest CIP Risk Scenario
In addition to the original CIP recommended and the moderate risk CIP passed by City Council vote, the City Council also considered a significant risk CIP scenario. In this scenario the postponed projects would still require completion, and the cost burden would necessitate a moderate-to-significant rate increase in FY 2032. This scenario was not recommended by City Council.

2.1.2 Financing
Chico City Council gave direction to fully fund the necessary R&R and capacity projects with rate revenue, also known as pay-as-you-go (PAYGO), rather than issuing new debt. Table 5 presents the funding sources for this CIP. Carollo modeled the funding strategy to first draw down available cash while maintaining its reserve target. Next, capital projects are paid by any remaining proceeds from issued debt.

Since there are no remaining proceeds from the existing debt, this line is zero. Lastly, any remaining unfunded capital projects are paid by rates.

Table 5 CIP Funding Sources ($ thousands)
Component FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Rate-Funded Capital (PAYGO) $2,891.3 $5,643.5 $17,633.7 $24,420.4 $55,542.8 Revenue Bonds (Debt) - - - - -
TOTAL FUNDED CIP $2,891.3 $5,643.5 $17,633.7 $24,420.4 $55,542.8 Notes:
(1) Totals may not tie due to rounding.

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2.2 Debt Obligations
The City’s current outstanding debt obligation is the 2020 Series Sewer Revenue Refunding Bond (original bond issued in 2008 and refinanced in 2020), whose last payment is in FY 2030. The 2020 Bond provided proceeds for project funding throughout the City’s utilities, approximately 34.5 percent of which funded wastewater capacity capital projects. The following table summarizes the remaining payments for this bond series.

Table 6 Existing Debt Summary ($ thousands)
Component FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Interest $136.2 $99.6 $61.1 $20.7 $-
Principal 714.2 750.4 788.3 828.0 -
TOTAL EXISTING DEBT $850.3 $850.0 $849.4 $848.7 $-

2.3 Financial Targets

2.3.1 Reserve Policy
The City currently maintains one reserve fund, Capital Reserve Fund 851, for the wastewater utility. The City has recently drawn this fund down significantly to mitigate rate increases when funding necessary CIP projects. To rebuild this fund for significant upcoming CIP projects and establish financial stability for emergencies, Carollo proposes an incremental adjustment to the reserve target, beginning at 60 days of O&M expenses, to reach 205 days in reserves by the end of the rate setting period in FY 2031.

The reserve balance forecast under the existing rate schedule is outlined in the table below.

Table 7 Reserve Balance Forecast Under Existing Rate Schedule ($ thousands) Component FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Fund Target (days of O&M) 60 Days 60 Days 90 Days 180 Days 205 Days Fund Target ($) $2,149.2 $2,227.1 $3,462.1 $7,176.5 $8,471.7 Beginning Balance $4,425.3 $3,853.3 $(558.1) $(17,250.0) $(41,035.1) Cash Flow (572.0) (4,411.5) (16,691.8) (23,785.1) (53,383.5) Ending Balance $3,853.3 $(558.1) $(17,250.0) $(41,035.1) $(94,418.6) Surplus/(Deficit) ($) 1,704.2 (2,785.3) (20,712.1) (48,211.6) (102,890.3) Surplus/(Deficit) (days of O&M) 108 Days -15 Days -448 Days -1,029 Days -2,285 Days Notes:
(1) Totals may not tie due to rounding.

As shown, the existing rates are insufficient to meet the reserve target throughout the rate-setting period.

The City falls below this target beginning in FY 2028. As this deficit is larger than the debt coverage deficit discussed in Section 2.3.2, it’s one of the drivers for the proposed rate revenue increase. Following the proposed rate revenue adjustments, the City is expected to meet its reserve targets throughout the duration of the rate-setting period, as shown in Table 8.

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Table 8 Reserve Balance Forecast After Proposed Rate Revenue Adjustments ($ thousands) Component FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Revenue Adjustments 55.0% 55.0% 3.0% 3.0% 3.0%
Beginning Balance $4,425.3 $10,070.9 $29,726.9 $38,643.1 $42,078.0 Cash Flow 5,645.6 19,656.0 8,916.2 3,434.9 (24,476.9)
Ending Balance $10,070.9 $29,726.9 $38,643.1 $42,078.0 $17,601.1 Surplus/(Deficit) ($) 6,306.3 23,069.9 24,321.6 25,629.0 9,129.4 Surplus/(Deficit) (days of O&M) 281 Days 801 Days 1,005 Days 1,055 Days 426 Days Notes:
(1) Totals may not tie due to rounding.

2.3.2 Debt Coverage
The debt coverage test is stipulated in the official statement for each bond series that the City issues. The City’s stipulated debt coverage is 1.25x, meaning that revenues minus operating expenditures must be 25 percent greater than the debt service due in that fiscal year.

Not all revenues are allowed in the debt coverage test. For the City, all sewer service charge and capacity charge revenues are included in the calculation. Some non-operating revenues, such as bond proceeds, are not permitted.

The overview of revenues and expenditures included in this test are outlined in the table below. The revenues outlined in the analysis are following the revenue adjustments shown in Table 8, under the assumption that needed increases are reserve-driven and not debt driven. Based on this assumption, the City is projected to exceed its debt coverage ratio requirements.

Table 9 Debt Service Coverage After Proposed Rate Revenue Adjustments ($ thousands) Component FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Eligible Revenues(1) $17,243.8 $26,068.5 $41,188.4 $42,951.6 $44,789.7 Operating Expenditures 13,074.1 13,548.3 14,040.8 14,552.4 15,083.8 Debt Service 2,464.8 2,463.6 2,462.1 2,460.0 -

1.25x Debt Coverage 616.2 615.9 615.5 615.0 -
Debt Service Coverage Target $16,155.1 $16,627.8 $17,118.5 $17,627.4 $15,083.8 Debt Coverage Surplus/(Deficit) 1,088.7 9,440.6 24,069.9 25,324.3 29,705.9 DSCR Before Current Year
Increase

1.69 x 5.08 x 11.03 x 11.54 x no debt
Rate Revenues from Rate
Adjustments
$9,326.3 $14,629.3 $1,251.7 $1,304.7 $1,360.0
Less: Rate Increase Delay (3,108.8) - - - -
DSCR After Increase 3.81 x 10.61 x 11.13 x 11.67 x no debt Notes:
(1) Eligible revenues exclude $1 million transfer through 2030 out to Fund 850 for additional debt coverage by other enterprises.
(2) Totals may not tie due to rounding.

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2.3.3 Cash Flow
The cash flow test provides the most immediate and straightforward test of financial performance, answering the question “Do revenues exceed expenses?” This offers a quick glance at the long-term viability of the funding plan.

In the City’s case, the cash flow test serves as a diagnostic but is not used for rate modeling purposes.

Carollo and the City determined that rebuilding reserves is the top priority and will be the primary driver of revenue increases. As a result, negative cash flows do not dictate rate increases in the financial modeling for the City.

However, the results of the cash flow test will still be shown in the Revenue Requirements analysis as an additional piece of information. Negative cash flow can be supported by excess reserves for a single year or even several years, but long term, positive cash flow should be pursued. It provides credit rating agencies a strong signal of the City’s financial health and could result in a higher credit rating for potential future debt issuances. Furthermore, it provides cushion to deal with emergency repairs and unanticipated capital expenses. Therefore, this Study looked closely at cash flow and placed significant weight on its forecast but did not use it as a primary driver of rate increases.

2.3.3.1 Uncollectable Debt
A substantial expense that the City must account for is the uncollectable debt from existing unpaying customers. Approximately 10 percent of rate revenue is under-collected. The City’s billing is currently contracted to an external company with limited ability to collect debt. In FY 2028, the City anticipates it will begin performing in-house billing and will have the flexibility to increase enforceability, such as utilizing liens or tax roll collection processes. Until then, this uncollectable debt increases the revenue deficit that rate payers must recover.

The following table presents the cash flow prior to proposed rate revenue adjustments.

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Table 10 Cash Flow Forecast Under Existing Rate Schedule ($ thousands) Component FY 2027 FY 2028 FY 2029 FY 2030 FY 2031

REVENUES
Operating Revenues
Rate Revenues $16,957.0 $17,160.4 $17,366.4 $17,574.8 $17,785.7 Other Operating Revenues 2,000.0 - - - -
Non-Operating Revenues
Fees $172.0 $174.1 $176.2 $178.3 $180.4
Rental Lease Income 20.0 20.0 20.0 20.0 20.0
Bond Proceeds - - - - -
Transfers to Fund 850 (1,209.5) (1,209.5) (1,209.5) (1,209.5) (209.5) Uncollectable Debt (1,695.7) (514.8) (521.0) (527.2) (533.6) Total Revenues $16,243.8 $15,630.2 $15,832.1 $16,036.3 $17,243.0

EXPENDITURES
Operating Expenditures
Salaries & Employee Benefits $4,974.6 $5,205.7 $5,448.0 $5,701.7 $5,967.6 Materials & Supplies 2,012.3 2,072.7 2,134.8 2,198.9 2,264.9 Purchased Services 2,832.0 2,917.0 3,004.5 3,094.6 3,187.5 Other Expenses 254.8 262.5 270.3 278.5 286.8
Allocations 3,000.4 3,090.4 3,183.1 3,278.6 3,377.0
Non-Operating Expenditures
Cash Funded Capital
(PAYGO)
$2,891.3 $5,643.5 $17,633.7 $24,420.4 $55,542.8
Existing Debt Service 850.3 850.0 849.4 848.7 -
Future Debt Service - - - - -
Total Expenditures $16,815.8 $20,041.7 $32,523.9 $39,821.4 $70,626.6 Annual Cash Flow
Surplus/(Deficit)
(572.0) (4,411.5) (16,691.8) (23,785.1) (53,383.5)
Notes:
(1) Totals may not tie due to rounding.

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Under the proposed rate revenue adjustments, the City sustains an annual cash flow surplus in FY 2027 through FY 2030. In FY 2031, there are significant CIP-driven expenditures which are primarily financed by drawing down the City’s Capital Reserve Fund 851. Despite that year’s annual cash flow deficit, FY 2031’s ending cash balance remains in surplus.

Table 11 Cash Flow Forecast After Proposed Rate Revenue Adjustments ($ thousands) Component FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Revenue Adjustments 55.0% 55.0% 3.0% 3.0% 3.0%
Rate Revenues Before Rate
Adjustments
$16,957.0 $17,160.4 $17,366.4 $17,574.8 $17,785.7
Rate Revenues from Prior
Year’s Rate Adjustments
- 9,438.2 24,356.3 25,915.3 27,546.7
Rate Revenues from Rate
Adjustments
9,326.3 14,629.3 1,251.7 1,304.7 1,360.0
Other Operating Revenue 2,000.0 - - - -
Non-Operating Revenues (2,713.2) (1,530.2) (1,534.3) (1,538.4) (542.6) Less: Rate Increase Delay1 (3,108.8) - - - -
Less: Expenditures (16,815.8) (20,041.7) (32,523.9) (39,821.4) (70,626.6) Resulting Annual Cash Flow
Surplus/(Deficit)
$5,645.6 $19,656.0 $8,916.2 $3,434.9 $(24,476.9)
Notes:
(1) If accepted, rate recommendations are not anticipated to go into effect until November 1, 2026. Due to the delay, there are four months of revenue that would be collected at the existing rates. The difference is deducted from projected cash flow. (2) Totals may not tie due to rounding.

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SECTION 3 COST-OF-SERVICE ANALYSIS
The COS analysis takes the revenue requirements outlined in the prior section and allocates them first to City functions and then to customer classes based on usage of the City’s system. This approach is based on the proportionality requirements of California’s Proposition 218. The goal is to provide a method of allocating costs that is fair and equitable and establishes a clear nexus between the wastewater discharge generated by different customers and the fees they are charged by the City to convey and treat that wastewater.

The City’s budget is divided into operating or capital expenses, and those expenses have specific functions as their goal. Those functions are driven by the demands and needs of the City’s service area and its customers. For instance, expenses related to chemicals, landfill, and biosolids are allocated among BOD and TSS, whereas costs of testing are allocated to flow, BOD, TSS, fixed costs, and customer service.

Using the industry standard methodology outlined in MOP 27, this analysis took the following steps to perform the cost-of-service allocation:

1. Allocate costs to functional categories (e.g., chemicals, power, maintenance, salaries).

2. Allocate functionalized costs to rate components: flow, BOD treatment, TSS treatment, fixed costs, and customer service.

3. Allocate costs to customer classes using rate component unit costs.

This adjusted cost of service by customer class and their respective units become the basis for designing rates in the final step.

3.1 Rate Component Allocation
Carollo maintained the allocations determined under the previous study to allocate sewer expenses, with slight adjustments. Budget categories are allocated fully or to a combination of fixed components (fixed, fixed-customer) and variable components (flow, BOD, TSS). For example, rather than recreating the process of estimating time allocations between the WPCP and the collection system for every individual staff member, the City engineers estimated that 60 percent of WPCP staff time is dedicated to volumetric components and 40 percent to fixed components including customer service. Furthermore, this Study excluded stormwater expenses, as their costs would not be recovered through sewer rates.

After allocating sewer expenses, Carollo applied the resulting total expenditure allocation to the offsetting non-rate revenues to determine the net revenue requirements allocation to rate components, summarized in Table 12.

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Table 12 Sewer Expenditures Allocation Factors and Summary (FY 2027) ($ thousands) Budget Categories FY 2027
Budget
Flow BOD
Strength
TSS Strength Fixed Fixed -
Customer
Salaries - WPCP $4,577.2 40.0% 10.0% 10.0% 35.0% 5.0%
Salaries - Collection 1,311.1 35.0% 0.0% 0.0% 60.0% 5.0% Chemicals, Landfill,
Biosolids
1,854.1 0.0% 50.0% 50.0% 0.0% 0.0%
Testing, Lab, Weed Control 71.7 55.0% 10.0% 10.0% 20.0% 5.0% Power 1,179.8 75.0% 10.0% 10.0% 5.0% 0.0%
Maintenance - WPCP 4,063.4 55.0% 10.0% 10.0% 20.0% 5.0% Maintenance -
Collection/Storm

16.9 25.0% 0.0% 0.0% 75.0% 0.0%
Debt 850.3 55.0% 10.0% 10.0% 25.0% 0.0%
Capital Expenditures 2,891.3 40.0% 10.0% 10.0% 40.0% 0.0% Total Expenditures
Allocation
$16,815.8 $7,077.4 $2,290.4 $2,290.4 $4,656.4 $501.2
Less: Non-Rate Revenues 713.2 (358.1) 169.5 169.5 651.3 80.9 Cash Flow 8,754.4 3,684.5 1,192.4 1,192.4 2,424.2 260.9 NET Revenue
Requirements Allocation
$26,283.3 $10,403.8 $3,652.3 $3,652.3 $7,731.9 $842.9
Allocation (%) 100.0% 39.6% 13.9% 13.9% 29.4% 3.2%
Notes:
(1) Totals may not tie due to rounding.

3.2 Customer Class Allocation
Establishing the unit costs for each billing process the City provides is the nexus between total cost of service and customer class costs of service. To calculate system unit costs and allocate costs of service to each customer group, all customer groups need units established for each of the cost components. The total cost of service is multiplied by each class’s portion of units for Flow in hundred cubic feet per year, BOD in pounds per year (lbs/yr), TSS in lbs/yr, Fixed Costs per EDU, and Customer Service Fixed Costs per Account to determine their unique costs of service.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 18

3.2.1 Flow
All accounts are charged based on their average winter water consumption per Chico Municipal Code (CMC) 15.36.060. Each customer’s winter consumption is calculated using the combined total of water consumed during the winter months – December, January, February, and March as provided by the water utility. These months reflect the historic months during which outdoor usage is at its lowest and, consequently, water consumption during this period will more accurately reflect water usage that is disposed to the wastewater system over the course of the entire year. Once established, this average wastewater flow remains effective for the following fiscal year, July through June, until it is recalculated after the following winter.

Equation 1 Billed Winter Water Consumption Formula
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶 (ℎ𝑐𝑐𝑐𝑐/ ℎ) = 𝐷𝐷 𝐹𝐹 𝐹𝐹 + 𝐽𝐽𝐽𝐽 𝐹𝐹 𝐹𝐹 + 𝐹𝐹 𝐹𝐹 𝐹𝐹 𝐹𝐹 + 𝑀𝑀 𝑀𝑀 ℎ 𝐹𝐹 𝐹𝐹 (𝐻𝐻 ) 4 ℎ
This winter water consumption is annualized when multiplied by three, as shown in Equation 2, which results in the assumed wastewater flow for the year per class.

Equation 2 Annualized Winter Water Consumption Formula
𝐴𝐴 𝐴𝐴 𝑊𝑊 𝑊𝑊 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶 (ℎ𝑐𝑐𝑐𝑐) = (𝐷𝐷 𝐹𝐹 𝐹𝐹 + 𝐽𝐽𝐽𝐽 𝐹𝐹 𝐹𝐹 + 𝐹𝐹 𝐹𝐹 𝐹𝐹 𝐹𝐹 + 𝑀𝑀 𝑀𝑀 ℎ 𝐹𝐹 𝐹𝐹) × 3 A flow adjustment factor is applied to the annualized winter consumption based on the actual flow measured at the WPCP to establish the annual volume for each customer tied to the actual flow received at the WPCP, which includes inflow and infiltration (I&I). This adjusted flow is only used for cost-of-service allocations, not billing purposes. This factor is calculated by dividing the WPCP’s annual actual flow received by the annualized winter consumption billed, as shown in Equation 3.

Equation 3 Flow Adjustment Factor Formula
𝐹𝐹 𝐹𝐹 𝐴𝐴 𝐴𝐴 𝐹𝐹 = 𝐴𝐴 𝐴𝐴 𝑊𝑊𝑊𝑊 𝑊𝑊 𝐹𝐹 𝐹𝐹 𝑅𝑅 𝑅𝑅 (𝐻𝐻 )
𝐶𝐶 𝐶𝐶 𝐶𝐶 𝐴𝐴 𝐴𝐴 𝑊𝑊 𝑊𝑊 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶 (𝐻𝐻 )
Carollo calculated this factor as 1.06 for 2025, based on the WPCP’s actual 2025 measured flow of 3,401,711 HCF and the calculated annualized winter consumption of 3,198,449 HCF. The summary of average winter water consumption, annualized winter water consumption, and plant-adjusted annual volume are shown in the table below.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 19
Table 13 Flow Summary by Customer Class
Class 2024/2025 Winter
Consumption(1)
Annualized Winter Water
Consumption
Adjusted Annual
Volume
Residential
Single Family 506,864 1,520,591 1,617,225
Multi-Family 302,057 906,170 963,757
Duplex – 2 Meters 3,093 9,280 9,869
Duplex – 1 Meter 40,574 121,722 129,457
Commercial
Bars without Dining 95 284 302
Brewery 615 1,846 1,963
Car Wash 3,266 9,798 10,420
Dorms 11,807 35,422 37,673
Hospital & Convalescent 28,754 86,262 91,744
Hotels w/o Dining 7,438 22,314 23,732
Hotels with Dining 34 102 108
Industrial Laundry 4,606 13,819 14,697
Laundromat 2,722 8,166 8,685
Markets/Bakeries 11,865 35,595 37,857
Mortuary 97 292 311
Restaurants 31,815 95,445 101,511
School 19,970 59,910 63,717
All Other 90,477 271,431 288,681
TOTAL FLOW (HCF) 1,066,150 3,198,449 3,401,711
Actual Plant (HCF) 3,401,711
Calculated Adjustment Factor 1.06
Notes:
(1) Winter consumption determined from data provided by CalWater of the December 2024 through March 2025 average flow.

3.2.2 Strength Loadings
Customer classes are determined by combining customers with similar flow and strength characteristics into customer classes. The most recent wastewater billing data was used to estimate the amount of sanitary sewer flows that go to the WPCP. For non-residential customers that do not have typical (i.e., residential) effluent strengths, volumetric rates reflect non-residential effluent strengths following the SWRCB Revenue Program Guidelines, measured in milligrams per liter (mg/L):

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 20
Table 14 Assumed Strength Factors by Customer Class
Class BOD Average Strength Factor (mg/L) TSS Average Strength Factor (mg/L) Residential(1) 175 175
Commercial
Bars without Dining 200 200
Brewery 1,000 600
Car Wash 20 150
Dorms 175 175
Hospital & Convalescent 250 100
Hotels w/o Dining 310 120
Hotels with Dining 500 600
Industrial Laundry 670 680
Laundromat 150 110
Markets/Bakeries 800 800
Mortuary 800 800
Restaurants 1,000 600
School 130 100
All Other 175 175
Notes:
(1) Single family, multi-family, and duplexes.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 21
These concentration assumptions can be converted to loading pounds using the following equation.

Equation 4 BOD and TSS Pounds Formula
( ) = 𝐹𝐹 𝐹𝐹 (𝑔𝑔 ) × 𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶 𝐶𝐶 𝐶𝐶𝐶𝐶 ( /𝐿𝐿) × 8.345 × 10−6 The Study converts BOD and TSS into pounds using the adjusted flow determined in Table 13. Similar to the adjustment required to tie assumptions to actual flow readings at the WPCP, BOD and TSS adjustment factors are calculated and applied to these loadings as well based on the modified adjustment factor formula shown below.

Equation 5 BOD Adjustment Factor Formula
𝐵𝐵𝐵𝐵 𝐴𝐴 𝐴𝐴 𝐹𝐹 = 𝐴𝐴 𝐴𝐴 𝐵𝐵𝐵𝐵 𝑅𝑅 𝑅𝑅 ( )
𝐶𝐶 𝐶𝐶 𝐶𝐶 𝐵𝐵𝐵𝐵 𝐴𝐴 𝐴𝐴 𝑊𝑊 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶 ( )
Equation 6 TSS Adjustment Factor Formula
𝑇𝑇𝑇𝑇𝑇𝑇 𝐴𝐴 𝐴𝐴 𝐹𝐹 = 𝐴𝐴 𝐴𝐴 𝑇𝑇𝑇𝑇𝑇𝑇 𝑅𝑅 𝑅𝑅 ( )
𝐶𝐶 𝐶𝐶 𝐶𝐶 𝑇𝑇𝑇𝑇𝑇𝑇 𝐴𝐴 𝐴𝐴 𝑊𝑊 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶 ( )
Carollo calculated the BOD adjustment factor as 0.44, which is in line with the previous Study’s determination of 0.50, and the TSS adjustment factor as 0.67, which is also similar to the previous Study’s

0.61. Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
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CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 22
Table 15 Calculated and Adjusted BOD and TSS by Customer Class (lbs/year) Class Unadjusted BOD Adjusted BOD Unadjusted TSS Adjusted TSS Residential
Single Family 1,766,716 777,357 1,766,716 1,178,819
Multi-Family 1,052,844 463,252 1,052,844 702,497
Duplex – 2 Meters 10,782 4,744 10,782 7,194
Duplex – 1 Meter 141,424 62,227 141,424 94,363
Commercial
Bars without Dining 377 166 377 252
Brewery 12,256 5,393 7,353 4,906
Car Wash 1,301 572 9,757 6,511
Dorms 41,155 18,108 41,155 27,460
Hospital & Convalescent 143,178 62,998 57,271 38,213
Hotels w/o Dining 45,926 20,207 17,778 11,862
Hotels with Dining 339 149 406 271
Industrial Laundry 61,470 27,047 62,388 41,628
Laundromat 8,132 3,578 5,964 3,979
Markets/Bakeries 189,055 83,185 189,055 126,145
Mortuary 1,551 682 1,551 1,035
Restaurants 633,680 278,820 380,208 253,689
School 51,708 22,752 39,775 26,540
All Other 315,366 138,761 315,366 210,424
TOTAL (lbs/year) 4,477,259 1,969,999 4,100,171 2,735,787 Actual Plant (lbs/year) 1,969,999 2,735,787
Adjustment Factor 0.44 0.67

3.2.2.1 Customer Class: Restaurants
The cost-of-service analysis prior to the 2022 rate study relied on out-of-date strength loadings assumptions. As the basis for historical rates assessed to restaurant customers, this caused an imbalance between the costs recovered from restaurants and their proportional demand of the system. After this history of underpaying, the 2022 rate study remedied the issue by updating the loadings assumptions which realigned restaurants with their system impact. This Study maintains those updated loadings assumptions.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 23

3.2.3 EDU Calculation
An EDU is the average SFR flow, pounds of BOD, and pounds of TSS in an average monthly sewer contribution, as determined by winter flow. Industry standards acknowledge that multi-family customers contribute slightly less than the average SFR customer. Therefore, multi-family residential customers are assumed to have 0.8 EDU and duplex customers are assumed to have 0.9 EDU. Since Commercial customers have varying flow and strength factors, Chico calculates an EDU for each Commercial customer based on its proportion of flow, BOD, and TSS compared to a single SFR customer using the following formula:

Equation 7 Commercial EDU Calculation Formula
𝐸𝐸 𝐸𝐸 = �
𝐴𝐴 𝐴𝐴 𝑊𝑊 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶 (𝐻𝐻 ) / 12
𝑀𝑀 ℎ 𝑙𝑙 𝐹𝐹 𝐹𝐹 (𝐻𝐻 ) × 60%�
+ �
𝐴𝐴 𝐴𝐴 𝐴𝐴 𝐵𝐵𝐵𝐵 ( ) / 12
𝑀𝑀 ℎ 𝑙𝑙 𝐵𝐵𝐵𝐵 ( ) × 20%�
+ �
𝐴𝐴 𝐴𝐴 𝐴𝐴 𝑇𝑇𝑇𝑇𝑇𝑇 ( ) / 12
𝑀𝑀 ℎ 𝑙𝑙 𝑇𝑇𝑇𝑇𝑇𝑇 ( ) / 12
× 20%�
The monthly flow and loadings assumptions for a single SFR customer are calculated by dividing the adjusted annual volume (hcf), BOD (lbs), or TSS (lbs) by the total number of SFR accounts. These are converted into a monthly figure after dividing by 12. The result is shown in Table 16 and used as the EDU basis for all Commercial EDU calculations.

Table 16 One EDU Flow and Loadings Calculation (2025)
Formula Component Flow (HCF) BOD (lbs) TSS (lbs)
SFR Annual Adjusted Amount 1,617,225 777,357 1,178,819
SFR Accounts 18,708 18,708 18,708
Months 12 12 12
Amount per Month per EDU 7.20 (HCF/month) 3.46 (lbs/month) 5.25 (lbs/month) Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 24

3.2.3.1 EDU Calculation Example
It can be helpful to understand the EDU calculation using an example customer. Assume a restaurant with a relative medium flow contribution of 25.0 HCF per month (equivalent to 18,701 gallons per month). All restaurants are assumed to have a 1,000 mg/L BOD and 600 mg/L TSS concentration of sewer returns per SWRCB Guidelines, as presented in Table 14. Using Equation 4 (modified to include the adjustment factor), the calculated BOD and TSS in pounds contributed by this customer per month are shown below:

Equation 8 Example Commercial Calculation: Adjusted BOD (lbs/month)

68.63 𝐵𝐵𝐵𝐵 / ℎ = 18,701𝑔𝑔 × 1,000 /𝐿𝐿 × 8.345 × 10−6 × 0.44 𝐵𝐵𝐵𝐵 𝐴𝐴 𝐴𝐴 𝐹𝐹 Equation 9 Example Commercial Customer Calculation: Adjusted TSS (lbs/month)

62.44 𝑇𝑇𝑇𝑇𝑇𝑇 / ℎ = 18,701𝑔𝑔 × 600 /𝐿𝐿 × 8.345 × 10−6 × 0.66 𝐵𝐵𝐵𝐵 𝐴𝐴 𝐴𝐴 𝐹𝐹 These loadings are used in the EDU formula to calculate the customer-specific EDU for billing purposes:

Equation 10 Example Commercial Customer EDU Calculation Formula

8.42 𝐸𝐸 𝐸𝐸 = � 25 𝐻𝐻

7.20 𝐻𝐻 × 60%� + � 68.63 𝐵𝐵𝐵𝐵 / ℎ3.46 𝐵𝐵𝐵𝐵 / ℎ × 20%� + � 62.44 𝑇𝑇𝑇𝑇𝑇𝑇 / ℎ 5.25 𝑇𝑇𝑇𝑇𝑇𝑇 / ℎ × 20%� Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 25

3.2.4 Class Units Summary
The following table summarizes the resulting units, converted as necessary, for each class:

Table 17 Units Summary by Class
Class Adjusted Annual
Volume (HCF)
BOD (lbs) TSS (lbs) EDU Accounts
Residential
Single Family 1,617,225 777,357 1,178,819 18,712 18,708 Multi-Family 963,757 463,252 702,497 10,749 1,673
Duplex – 2 Meters 9,869 4,744 7,194 110 138
Duplex – 1 Meter 129,457 62,227 94,363 1,444 899
Commercial
Bars without Dining 302 166 252 4 1
Brewery 1,963 5,393 4,906 54 3
Car Wash 10,420 572 6,511 91 11
Dorms 37,673 18,108 27,460 420 8
Hospital &
Convalescent
91,744 62,998 38,213 1,023 56
Hotels w/o Dining 23,732 20,207 11,862 290 9
Hotels with Dining 108 149 271 2 1
Industrial Laundry 14,697 27,047 41,628 358 2
Laundromat 8,685 3,578 3,979 87 6
Markets/Bakeries 37,857 83,185 126,145 1,048 36
Mortuary 311 682 1,035 9 2
Restaurants 101,511 278,820 253,689 2,810 185
School 63,717 22,752 26,540 610 69
All Other 288,681 138,761 210,424 3,220 1,199
Total System Units 3,401,711 1,969,999 2,735,787 41,040 23,006 Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 26

3.2.5 Customer Class Allocation Summary
Once the units have been determined and converted, as necessary, the revenue requirements can be allocated to each customer class. The following table summarizes the class allocation, and further calculation details are provided in the Appendix.

Table 18 Functional Costs Allocated by Class ($ thousands) Class Flow Costs BOD Costs TSS Costs Fixed Costs Fixed - Customer Costs
Revenue Requirements $10,403.8 $3,652.3 $3,652.3 $7,731.9 $842.9 Residential
Single Family 4,946.1 1,441.2 1,573.8 3,525.3 685.5
Multi-Family 2,947.5 858.9 937.9 2,025.1 61.3
Duplex – 2 Meters 30.2 8.8 9.6 20.7 5.1
Duplex – 1 Meter 395.9 115.4 126.0 272.0 32.9
Commercial
Bars without Dining 0.9 0.3 0.3 0.7 0.0
Brewery 6.0 10.0 6.6 10.2 0.1
Car Wash 31.9 1.1 8.7 17.2 0.4
Dorms 115.2 33.6 36.7 79.2 0.3
Hospital & Convalescent 280.6 116.8 51.0 192.8 2.1
Hotels w/o Dining 72.6 37.5 15.8 54.6 0.3
Hotels with Dining 0.3 0.3 0.4 0.4 0.0
Industrial Laundry 44.9 50.1 55.6 67.5 0.1
Laundromat 26.6 6.6 5.3 16.3 0.2
Markets/Bakeries 115.8 154.2 168.4 197.4 1.3
Mortuary 0.9 1.3 1.4 1.6 0.1
Restaurants 310.5 516.9 338.7 529.3 6.8
School 194.9 42.2 35.4 114.8 2.5
All Other 882.9 257.3 280.9 606.6 43.9
Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 27
SECTION 4 RATE DESIGN
The wastewater rate design analysis determines how the costs allocated to each class are recovered from each customer through specified wastewater rates. The focus of this process is to achieve full cost recovery and substantiate that customers are paying their fair and proportionate share of system costs.

Once costs have been equitably allocated to each functional component, rates can be designed to cover those costs. The City adopted the previous Study’s recommendation which transitioned the rate structure from 100 percent of the revenue from fixed charges for residential customers to a combination of 70 percent fixed and 30 percent variable charges, similar to the structure for commercial customers. In determining the appropriate rate level and structure, Carollo revisited rate objectives and utility implications with City staff. Along with appropriately allocating costs between customer classes and to individual customers, staff conveyed the need to continue to collect a similar level of fixed revenue in recognition of fixed costs. As such, the City elected to maintain the existing rate structure, updated to recover 60 percent through fixed charges to cover fixed costs and 40 percent through volumetric rates for system demands.

4.1 Fixed Monthly Charges
A monthly fixed charge is a cost recovery mechanism that is generally included in the rate structure to recover the utility’s fixed expenditures, such as metering, testing, and customer related costs. These costs also include a portion of the capacity-related cost to provide a stable source of revenue independent of monthly wastewater flows. The proposed fixed charge primarily recovers the customer service and other fixed cost components of the revenue requirements. It is assessed to Residential customers (single family, multi-family, and duplex) on a per unit basis and to Commercial customers on a per EDU basis. The remaining residential customers are charged proportionately to their EDU, which is 0.80 EDU for multifamily and 0.90 EDU for duplex.

Carollo determined the fixed charge to be $32.00 (per unit or per EDU, depending on class), which recovers approximately 60 percent of revenue through fixed charges. This cost recovery percentage is distinct from the cost allocation shown in Table 12. The following table presents the existing and recommended monthly fixed charge. It also includes a calculation of the projected revenue under these charges by multiplying the number of units or EDUs by the monthly fixed charge for each month (12).

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 28
Table 19 Recommended Monthly Fixed Charges
Customer Class Number of Units or EDUs Recommended Monthly Fixed Charge
Projected Revenue from
Fixed Charges(1)
Residential
Single Family 18,712 $32.00/Unit $7,185.5
Multi-Family 13,724 $25.60/Unit 4,216.0
Duplex – 2 Meters 138 $28.80/Unit 47.7
Duplex – 1 Meter 1,811 $28.80/Unit 625.7
Commercial
Bars without Dining 4 $32.00/EDU 1.4
Brewery 54 $32.00/EDU 20.9
Car Wash 91 $32.00/EDU 35.1
Dorms 420 $32.00/EDU 161.3
Hospital & Convalescent 1,023 $32.00/EDU 392.9
Hotels w/o Dining 290 $32.00/EDU 111.3
Hotels with Dining 2 $32.00/EDU 0.9
Industrial Laundry 358 $32.00/EDU 137.6
Laundromat 87 $32.00/EDU 33.2
Markets/Bakeries 1,048 $32.00/EDU 402.4
Mortuary 9 $32.00/EDU 3.3
Restaurants 2,810 $32.00/EDU 1,078.9
School 610 $32.00/EDU 234.1
All Other 3,220 $32.00/EDU 1,236.4
TOTAL REVENUE $15,924.5
Notes:
(1) $ thousands
Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 29

4.2 Volumetric Rates
The recommended fixed charges presented in Table 19 are projected to recover $15.9 million of its revenue requirements through fixed charges in FY 2027. The remaining $11.4 million, therefore, must be recovered through volumetric rates. For each customer class, Carollo divided the remaining revenue requirements unrecovered from fixed charges by their respective annualized winter consumption and rounded up to the nearest cent. The annualized winter consumption is used instead of the adjusted annual volume presented in Table 17 because it is more closely linked to billed system use.

This Study considered all Residential customers together and summed their respective units and revenue requirements. The results are summarized in the table below:

Table 20 Recommended FY 2027 Volumetric Rates
Customer Class Annualized Winter
Consumption (HCF)
Remaining Revenue
Requirements (1, 2)
Recommended Volumetric
Rate ($/HCF)
Residential(2) 2,557,763 $8,994.5 $3.11
Commercial
Bars without Dining 284 $0.9 $3.19
Brewery 1,846 12.0 $6.53
Car Wash 9,798 24.1 $2.46
Dorms 35,422 103.6 $2.92
Hospital & Convalescent 86,262 250.3 $2.90
Hotels w/o Dining 22,314 69.5 $3.12
Hotels with Dining 102 0.6 $5.50
Industrial Laundry 13,819 80.7 $5.84
Laundromat 8,166 21.8 $2.67
Markets/Bakeries 35,595 234.8 $6.60
Mortuary 292 2.0 $6.82
Restaurants 95,445 623.3 $6.54
School 59,910 155.8 $2.60
All Other 271,431 835.2 $3.08
TOTAL 3,198,449 $11,409.1
Notes:
(1) Recoverable through volumetric rates.
(2) Includes Single Family, Multi-Family, and Duplexes. (3) $ thousands.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
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CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 30

4.3 Rate Summary
This report presented the revenue requirements and resulting rates for a scenario that issues no debt to cover the moderate risk CIP for necessary R&R system improvements, regulatory requirements, and capacity upgrades. While there are significant Year 1 and Year 2 increases required under this scenario, the remaining years are recommended to increase annually by 3 percent to adjust for inflation and maintain reserves to fund other system improvements and emergencies. Since these recommended rates are calculated based on a revenue requirement that considers inflation, Carollo does not recommend any additional annual adjustment. Table 21 and Table 22 present the rate schedules recommended under this modeled revenue increase for the following five years of the rate-setting period.

Table 21 Existing and Recommended Monthly Fixed Charge ($/Unit or $/EDU) (FY 2027- FY 2031) Customer Class Existing FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 Revenue Adjustments 55.0% 55.0% 3.0% 3.0% 3.0%
Residential
Single Family $28.47 $32.00 $49.60 $51.09 $52.62 $54.20 Multi-Family $16.12 $25.60 $39.68 $40.87 $42.10 $43.36
Duplex – 2 Meters $9.22 $28.80 $44.64 $45.98 $47.36 $48.78 Duplex – 1 Meter $18.48 $28.80 $44.64 $45.98 $47.36 $48.78 Commercial
Bars without Dining $28.47 $32.00 $49.60 $51.09 $52.62 $54.20 Brewery $28.47 $32.00 $49.60 $51.09 $52.62 $54.20
Car Wash $28.47 $32.00 $49.60 $51.09 $52.62 $54.20
Dorms $28.47 $32.00 $49.60 $51.09 $52.62 $54.20
Hospital & Convalescent $28.47 $32.00 $49.60 $51.09 $52.62 $54.20 Hotels w/o Dining $28.47 $32.00 $49.60 $51.09 $52.62 $54.20 Hotels with Dining $28.47 $32.00 $49.60 $51.09 $52.62 $54.20 Industrial Laundry $28.47 $32.00 $49.60 $51.09 $52.62 $54.20 Laundromat $28.47 $32.00 $49.60 $51.09 $52.62 $54.20
Markets/Bakeries $28.47 $32.00 $49.60 $51.09 $52.62 $54.20 Mortuary $28.47 $32.00 $49.60 $51.09 $52.62 $54.20
Restaurants $28.47 $32.00 $49.60 $51.09 $52.62 $54.20
School $28.47 $32.00 $49.60 $51.09 $52.62 $54.20
All Other $28.47 $32.00 $49.60 $51.09 $52.62 $54.20
Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 31
Table 22 Existing and Recommended Volumetric Rates ($/HCF) (FY 2027 – FY 2031) Customer Class Existing FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 Revenue Adjustments 55.0% 55.0% 3.0% 3.0% 3.0%
Residential
Single Family $1.30 $3.11 $4.82 $4.96 $5.11 $5.26
Multi-Family $1.30 $3.11 $4.82 $4.96 $5.11 $5.26
Duplex – 2 Meters $1.30 $3.11 $4.82 $4.96 $5.11 $5.26
Duplex – 1 Meter $1.30 $3.11 $4.82 $4.96 $5.11 $5.26
Commercial
Bars without Dining $0.88 $3.19 $4.94 $5.09 $5.24 $5.40 Brewery $2.06 $6.53 $10.12 $10.42 $10.73 $11.05
Car Wash $0.60 $2.46 $3.81 $3.92 $4.04 $4.16
Dorms $0.75 $2.92 $4.53 $4.67 $4.81 $4.95
Hospital & Convalescent $0.72 $2.90 $4.50 $4.64 $4.78 $4.92 Hotels w/o Dining $0.81 $3.12 $4.84 $4.99 $5.14 $5.29
Hotels with Dining $1.63 $5.50 $8.53 $8.79 $9.05 $9.32
Industrial Laundry $1.87 $5.84 $9.05 $9.32 $9.60 $9.89
Laundromat $0.69 $2.67 $4.14 $4.26 $4.39 $4.52
Markets/Bakeries $2.20 $6.60 $10.23 $10.54 $10.86 $11.19 Mortuary $2.66 $6.82 $10.57 $10.89 $11.22 $11.56
Restaurants $2.18 $6.54 $10.14 $10.44 $10.75 $11.07
School $0.64 $2.60 $4.03 $4.15 $4.27 $4.40
All Other $0.99 $3.08 $4.77 $4.91 $5.06 $5.21
Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 32
SECTION 5 BILL IMPACTS
The City recognizes how the revenue requirements of maintaining and expanding the utility’s system impacts its customers. The City requested that this Study include a review of the bill impact on the average customer in each class and, for restaurants, a range of customers by high, medium, and low flow assumptions. Table 23 summarizes the calculated bill under existing and recommended FY 2027 rates.

FY 2027 is shown as the first recommended rate year under this proposed structure.

Table 23 Bill Impacts Under Existing and Proposed Rates ($/HCF) (2026-2027) Customer Class Monthly HCF EDU(1) Existing Bill FY 2027 Bill Change ($) Change (%) Residential
Single Family 7.2 $37.83 $54.40 $16.57 ↑ 43.79%
Multi-Family 5.5 $23.27 $42.71 $19.44 ↑ 83.52%
Duplex – 2 Meters 5.6 $16.50 $46.22 $29.72 ↑ 180.10%
Duplex – 1 Meter 5.6 $25.76 $46.22 $20.46 ↑ 79.41%
Commercial
Bars without Dining 23.7 3.5 / 3.2 $111.27 $186.90 $75.63 ↑ 67.97% Brewery 51.3 17.3 / 17.7 $608.80 $888.41 $279.61 ↑ 45.93% Car Wash 74.2 8.2 / 6.9 $242.34 $444.33 $201.99 ↑ 83.35% Dorms 369.0 51.2 / 46.2 $1,592.25 $2,716.61 $1,124.36 ↑ 70.61% Hospital & Convalescent 128.4 17.8 / 16.1 $550.21 $942.73 $392.51 ↑ 71.34% Hotels w/o Dining 206.6 31.3 / 28.8 $986.44 $1,646.24 $659.79 ↑ 66.89% Hotels with Dining 8.5 2.2 / 2.2 $75.99 $116.87 $40.88 ↑ 53.79% Industrial Laundry 575.8 171.2 / 173 $6,004.90 $8,843.59 $2,838.68 ↑ 47.27% Laundromat 113.4 14.1 / 12.4 $431.56 $754.70 $323.14 ↑ 74.88% Markets/Bakeries 82.4 27.8 / 28.4 $989.40 $1,432.77 $443.37 ↑ 44.81% Mortuary 12.2 4.1 / 4.2 $152.10 $214.82 $62.72 ↑ 41.23% Restaurants (Low) 15.0 5.1 / 5.2 $179.81 $259.92 $80.11 ↑ 44.55% Restaurants (Med) 25.0 8.4 / 8.6 $299.69 $433.20 $133.51 ↑ 44.55% Restaurants (High) 71.2 24 / 24.5 $853.51 $1,233.75 $380.24 ↑ 44.55% School 72.4 8.7 / 7.5 $261.06 $465.74 $204.68 ↑ 78.40%
All Other 18.9 2.6 / 2.4 $86.09 $142.17 $56.08 ↑ 65.14% Notes:
(1) Commercial EDUs are shown as Current Study / Previous Study.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 33
The average bill change percentage for FY 2027 may not match the 55 percent revenue adjustment detailed in Section 2 of this report. This difference is best understood in the context of cost-of-service allocations and customer class pressure on the system, rather than in comparison to the utility's overall rate revenue increase needs.

First, each Cost-of-Service Study realigns rates with projected operating expenses and planned CIP. As those needs and economic conditions change, as well as utility staff's assessment of resources dedicated to various system components, the allocation between fixed and volumetric rate components should adjust in response.

Second, the flow and strength assumptions for each class – based on California’s SWRCB Revenue Guidelines discussed in Section 3.2 – dictates how much of the allocated revenue requirement should be recovered by each class. Within each class's responsibility of expenses, each customer's unique winter average flow and EDU (derived from Equation 7) establishes that specific customer's cost pressure on the system. Therefore, some customer classes are responsible for more of the cost recovery within the utilitywide rate revenue increase than others.

The changing needs and resource management for operating and maintaining the system and the unique pressures each class demands causes the average bill change percentage for any given class to potentially be above or below the 55 percent overall rate revenue increase determined.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 34
SECTION 6 ALTERNATIVE SCENARIOS CONSIDERED
Carollo began this Study by modeling the revenue requirements for the original recommended CIP. In alignment with the City Council’s decision to forgo issuing additional debt, Carollo determined that the City would require an 180 percent rate increase in FY 2027.

At the March 17, 2026, City Council meeting, Council passed a motion (Ayes: Goldstein, Hawley, Winslow, Bennett, Noes: O’Brien, van Overbeek, Reynolds) to approve Option 1 – Limited Risk CIP (180 percent increase Year 1, 3 percent increase Years 2-5) to adopt the proposed sewer rate schedule and directed staff to initiate the Proposition 218 process, including preparation of and distribution of the public hearing notice.

Then, at the April 7, 2026, City Council meeting, Vice Mayor Bennett made a Council Member Request to agendize reconsideration of his March 17, 2026, “Aye” vote to approve the sewer rate increase associated with Option 1 (180 percent increase Year 1, 3 percent increase Years 2-5).

At the May 5, 2026, City Council meeting, after reconsideration, the motion made at the March 17, 2026, meeting failed (Ayes: Goldstein, Hawley, Noes: O’Brien, van Overbeek, Reynolds, Bennett, Winslow).

Council then passed a motion to have staff re-examine the sewer enterprise study and come back to Council on June 16, 2026, with additional sewer rate options, confirmation from the State Water Resources Control Board (SWRCB) on regulatory requirements, and to look for a financial advisor.

At the June 16, 2026, City Council meeting, Council passed a motion (Ayes: Goldstein, Hawley, Winslow, Bennett, Noes: O’Brien, van Overbeek, Reynolds) to approve Option 4b – Moderate Risk CIP (55 percent increase Year 1, 55 percent increase Year 2, 3 percent increase Years 3-5) and to adopt the proposed sewer rate schedule and directed staff to initiate the Proposition 218 process, including preparation of and distribution of the public hearing notice.

This report details a scenario where CIP and other expenditures are recovered using a rate schedule that front-loads the required rate revenue increases in Year 1 and Year 2 to minimize the risk of requiring additional rate increases above inflation within the next ten years (through FY 2036). It also assumes a moderate risk CIP that postpones certain projects and places the burden of payment on future ratepayers, when those project costs will be higher.

However, this approach is not the only option for recovering necessary revenue. For example, some utilities choose to perform incremental increases over the rate setting period, or issue debt to cover significant CIP costs, which helps mitigate upfront costs, smooths rates, and insulates customers from extreme rate fluctuations. The City Council deliberated extensively over multiple meetings the tradeoffs of debt financing and reduced CIP risks.

To fully fund the original limited risk CIP using rate revenue, the rate schedule would maintain the same methodology and calculation approach as discussed in Section 4. However, since the revenue requirement for FY 2027 is increased in a large Year 1 increase and smaller Years 2-5 approach, the rates increase significantly in Year 1. The following table summarizes the net revenue requirements by customer class under this scenario and the resulting calculated monthly fixed charges and volumetric rates. Under this previous alternatively considered rate and charges schedule, 3 percent increase were proposed in FY 2028 – FY 2031.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 35
Table 24 Alternatively Considered Rates and Charges Schedule – Original CIP (FY 2027) Customer Class Net Revenue
Requirements(1)
Alternative Monthly Fixed
Charge
Alternative Volumetric Rate
($/hcf)
Residential
Single Family $21,897.4 $57.00/Unit $5.74
Multi-Family 12,432.6 $45.60/Unit $5.74
Duplex – 2 Meters 133.3 $51.30/Unit $5.74
Duplex – 1 Meter 1,703.5 $51.30/Unit $5.74
Commercial
Bars without Dining $4.1 $57.00/EDU $5.95
Brewery 58.8 $57.00/EDU $11.72
Car Wash 108.8 $57.00/EDU $4.72
Dorms 483.1 $57.00/EDU $5.53
Hospital & Convalescent 1,173.0 $57.00/EDU $5.49
Hotels w/o Dining 328.9 $57.00/EDU $5.86
Hotels with Dining 2.6 $57.00/EDU $9.82
Industrial Laundry 390.9 $57.00/EDU $10.56
Laundromat 100.7 $57.00/EDU $5.09
Markets/Bakeries 1,138.5 $57.00/EDU $11.86
Mortuary 9.4 $57.00/EDU $12.15
Restaurants 3,041.4 $57.00/EDU $11.73
School 713.8 $57.00/EDU $4.96
All Other 3,758.6 $57.00/EDU $5.74

TOTAL REVENUE

REQUIREMENTS
$47,479.5
Notes:
(1) $ thousands.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 36
Table 25 illustrates the bill impact under the alternative revenue increase schedule which would rate-fund the original CIP over the duration of the rate-setting period. It is calculated using the same assumptions for average single family and multi-family customers as well as high, medium, and low flow restaurants.

Table 25 Bill Impacts Under Existing and Alternative Recommended Rates – Original CIP ($/HCF) (2026-2031) Customer Class Existing Bill FY 2027 Bill FY 2028 Bill FY 2029 Bill FY 2030 Bill FY 2031 Bill Residential
Single Family $37.83 $98.35 $101.28 $104.34 $107.45 $110.69 Multi-Family $23.27 $77.17 $79.48 $81.88 $84.32 $86.85
Duplex – 2 Meters $16.50 $83.44 $85.94 $88.53 $91.17 $93.92 Duplex – 1 Meter $25.76 $83.44 $85.94 $88.53 $91.17 $93.92 Commercial
Bars without Dining $111.27 $339.26 $349.47 $359.86 $370.66 $381.90 Brewery $608.80 $1,587.02 $1,634.55 $1,683.45 $1,733.74 $1,785.57 Car Wash $242.34 $816.55 $840.93 $866.46 $892.40 $918.83 Dorms $1,592.25 $4,960.28 $5,110.60 $5,263.48 $5,422.61 $5,584.82 Hospital & Convalescent $550.21 $1,720.88 $1,771.90 $1,825.10 $1,879.19 $1,935.63 Hotels w/o Dining $986.44 $2,994.86 $3,085.57 $3,177.85 $3,273.76 $3,371.54 Hotels with Dining $75.99 $208.37 $214.59 $220.99 $227.59 $234.41 Industrial Laundry $6,004.90 $15,843.32 $16,320.47 $16,811.93 $17,317.72 $17,839.54 Laundromat $431.56 $1,382.19 $1,423.35 $1,466.35 $1,510.06 $1,555.74 Markets/Bakeries $989.40 $2,560.67 $2,637.83 $2,717.21 $2,798.80 $2,882.89 Mortuary $152.10 $382.67 $394.09 $405.97 $418.17 $430.74 Restaurants (Low) $179.81 $464.19 $478.09 $492.39 $507.09 $522.25 Restaurants (Med) $299.69 $773.65 $796.81 $820.65 $845.15 $870.41 Restaurants (High) $853.51 $2,203.36 $2,269.32 $2,337.20 $2,406.99 $2,478.93 School $261.06 $853.40 $879.09 $905.22 $932.50 $960.30
All Other $86.09 $258.03 $265.73 $273.75 $281.90 $290.40 Notes:
(1) Commercial EDUs are shown as Current Study / Previous Study.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY 37
SECTION 7 CONCLUSION
On June 16, 2026, the City Council passed the motion 4-3 to recommend the rates and charges proposed for FY 2027 through FY 2031 that are detailed in the main body of this report, under a 55 percent rate revenue increase in both FY 2027 and FY 2028 and 3 percent increases annually for FY 2029 – FY 2031. The increased revenues generated by the rates will allow the City to meet its financial commitments, achieve necessary capital funding objectives, and meet increasingly strict regulatory requirements.

Note that the recommended rates were calculated under the assumptions presented in this report to generate sufficient revenue for the City’s needs. Projected rate revenue is based on rates be implemented on November 1st in FY 2027 and then July 1 of each year thereafter. Regulatory requirements, economic conditions, weather events, system emergencies, and other factors can influence the revenue recovered and/or required for sufficiently maintaining the utility. Therefore, these projections should be revisited annually and updated as necessary as conditions change.

Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY

APPENDIX A ORIGINAL LIMITED RISK CIP
Attachment A
Appendix A: Original Limited Risk CIP
Driver Project 5-Year Total FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 Predictive Control Upgrades for Aeration Tank No. 6 $ 545,668 $ 545,668 $ - $ - $ - $ - $ - $ - $ - $ - $ - Chlorine Testing $ 160,888 $ - $ 160,888 $ - $ - $ - $ - $ - $ - $ - $ - Effluent Diversion and Northeast Pond Upgrades: Design $ 4,936,285 $ - $ - $ 4,936,285 $ - $ - $ - $ - $ - $ - $ - Modified MLE Process Upgrades: Design $ 1,047,856 $ - $ - $ 1,047,856 $ - $ - $ - $ - $ - $ - $ - WPCP Strategic Plan Update $ 850,653 $ - $ - $ 850,653 $ - $ - $ - $ - $ - $ - $ - Remove abandoned outfall, if required by State Lands Commission $ 2,770,494 $ - $ - $ - $ 2,770,494 $ - $ - $ - $ - $ - $ - Cybersecurity Upgrades $ 2,000,000 $ - $ - $ - $ 2,000,000 $ - $ - $ - $ - $ - $ - Effluent Diversion and Northeast Pond Upgrades $ 42,737,345 $ - $ - $ - $ - $ 42,737,345 $ - $ - $ - $ - $ - Modified MLE Process Upgrades $ 7,645,343 $ - $ - $ - $ - $ 7,645,343 $ - $ - $ - $ - $ - Tertiary Filtration Upgrades (Planning/Design) $ 561,800 $ - $ - $ - $ - $ 561,800 $ - $ - $ - $ 4,973,989 $ - 2027 Sewer Pipe Replacement Project $ 4,243,600 $ 4,243,600 $ - $ - $ - $ - $ - $ - $ - $ - $ - 2028 Sewer Pipe Replacement Project $ 5,431,808 $ 1,060,900 $ 4,370,908 $ - $ - $ - $ - $ - $ - $ - $ - 2029 Sewer Pipe Replacement Project $ 5,594,762 $ - $ 1,092,727 $ 4,502,035 $ - $ - $ - $ - $ - $ - $ - 2030 Sewer Pipe Replacement Project $ 5,762,605 $ - $ - $ 1,125,509 $ 4,637,096 $ - $ - $ - $ - $ - $ - 2031 Sewer Pipe Replacement Project $ 5,935,483 $ - $ - $ - $ 1,159,274 $ 4,776,209 $ - $ - $ - $ - $ - 2032 Sewer Pipe Replacement Project $ - $ - $ - $ - $ - $ - $ 6,149,369 $ - $ - $ - $ - Annual WPCP Improvements $ 1,740,431 $ 327,818 $ 337,653 $ 347,782 $ 358,216 $ 368,962 $ 380,031 $ 391,432 $ 403,175 $ 415,270 $ 427,728 Annual Sewer Maintenance $ 1,160,287 $ 218,545 $ 225,102 $ 231,855 $ 238,810 $ 245,975 $ 253,354 $ 260,955 $ 268,783 $ 276,847 $ 285,152 DEHP, Lead, and Zinc Treatment Evaluation $ - $ - $ - $ - $ - $ - $ 625,414 $ - $ - $ - $ - Primary Treatment, Aeration, Solids Condition-Driven Upgrades $ - $ - $ - $ - $ - $ - $ - $ 11,044,416 $ - $ - $ - WPCP Roofs $ 205,433 $ 205,433 $ - $ - $ - $ - $ - $ - $ - $ - $ - WPCP NPDES Permit Requirements $ 865,574 $ 163,035 $ 167,926 $ 172,964 $ 178,153 $ 183,497 $ 189,002 $ 194,672 $ 200,512 $ 206,528 $ 212,724 Stormwater Mgmg Program $ 844,869 $ 159,135 $ 163,909 $ 168,826 $ 173,891 $ 179,108 $ 184,481 $ 190,016 $ 195,716 $ 201,587 $ 207,635 General Plan Implementation $ 91,004 $ 17,141 $ 17,655 $ 18,185 $ 18,730 $ 19,292 $ 19,871 $ 20,467 $ 21,081 $ 21,714 $ 22,365 Disinfection, Chemical Building, Solids Thickening and Dewatering, & Plant Power Systems Condition-Driven Upgrades
$ 3,445,847 $ - $ 3,445,847 - $ $ - $ - $ - $ - $ - $ - $ - Aeration System Condition-Driven Upgrades $ 2,369,795 $ - $ - $ 2,369,795 $ - $ - $ - $ - $ - $ - $ - Secondary Treatment, Disinfection, 3W, Solids Dewatering, and Miscellaneous Plant Condition-Driven Upgrades
$ 13,355,859 $ - $ - $ 13,355,859 - $ $ - $ - $ - $ - $ - $ - Solids Digestion Condition-Driven Upgrades $ 3,248,052 $ - $ - $ - $ 3,248,052 $ - $ - $ - $ - $ - $ - Disinfection, Solids Digestion, and Solids Mixing $ 8,909,212 $ - $ - $ - $ - $ 8,909,212 $ - $ - $ - $ - $ - WPCP Administration, Maintenance, and Shop Building Improvements $ 3,065,565 $ - $ - $ - $ - $ 3,065,565 $ - $ - $ - $ - $ - Sewer Enterprise Study $ 358,216 $ - $ - $ - $ - $ 358,216 $ - $ - $ - $ - $ - Headworks, Chemical Building, Solids Dewatering, and Electrical Systems
$ - $ - $ - $ - $ - $ 12,536,988 - $ $ - $ - $ - $ -
Future Treatment Plant Project $ - $ - $ - $ - $ - $ - $ 4,000,000 $ 4,000,000 $ 4,000,000 $ 4,000,000 $ 4,000,000 Future Sewer Pipe Replacement Projects $ - $ - $ - $ - $ - $ - $ - $ 6,333,850 $ 6,523,866 $ 6,719,582 $ 6,921,169 Sanitary Sewer System Master Plan Projects - Existing User Contribution $ 4,308,834 $ 811,589 $ 835,936 $ 861,014 $ 886,845 $ 913,450 $ 940,854 $ 969,079 $ 998,151 $ 1,028,096 $ 1,058,939 Sanitary Sewer Master Plan (SSMP) Update $ 281,623 $ 53,045 $ 54,636 $ 56,275 $ 57,964 $ 59,703 $ 61,494 $ 63,339 $ 65,239 $ 67,196 $ 69,212 New 100-ft Secondary Clarifier $ - $ - $ - $ - $ - $ - $ - $ 24,304,889 $ - $ - $ - Total Escalated CIP Projects $ 7,805,909 $ 7,427,341 $ 20,134,880 $ 29,083,384 $ 70,023,678 $ 25,340,858 $ 47,773,115 $ 12,676,524 $ 17,910,808 $ 13,204,924 Total 5-Year CIP $ 134,475,191
Regulatory
Condition
Capacity
Attachment A

FINAL DRAFT
2026 SEWER COST OF SERVICE AND RATE STUDY
JULY 2026 / FINAL / CAROLLO

CITY OF CHICO
2026 SEWER COST OF SERVICE AND RATE STUDY

APPENDIX B MODERATE RISK CIP FOR APPROVED
RATES
Attachment A
Appendix B: Moderate Risk CIP for Approved Rates
Driver Project 5-Year Total FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 Predictive Control Upgrades for Aeration Tank No. 6 $ 545,668 $ 545,668 $ - $ - $ - $ - $ - $ - $ - $ - $ - Chlorine Testing $ 160,888 $ - $ 160,888 $ - $ - $ - $ - $ - $ - $ - $ - Effluent Diversion and Northeast Pond Upgrades: Design $ 4,272,469 $ - $ - $ 4,272,469 $ - $ - $ - $ - $ - $ - $ - Modified MLE Process Upgrades: Design $ 1,047,856 $ - $ - $ 1,047,856 $ - $ - $ - $ - $ - $ - $ - WPCP Strategic Plan Update $ 850,653 $ - $ - $ 850,653 $ - $ - $ - $ - $ - $ - $ - Remove abandoned outfall, if required by State Lands Commission $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Cybersecurity Upgrades $ 2,000,000 $ - $ - $ - $ 2,000,000 $ - $ - $ - $ - $ - $ - Effluent Diversion and Northeast Pond Upgrades $ 29,907,208 $ - $ - $ - $ - $ 29,907,208 $ - $ - $ - $ - $ - Modified MLE Process Upgrades $ 7,645,343 $ - $ - $ - $ - $ 7,645,343 $ - $ - $ - $ - $ - Tertiary Filtration Upgrades (Planning/Design) $ 561,800 $ - $ - $ - $ - $ 561,800 $ - $ - $ - $ 4,973,989 $ - 2027 Sewer Pipe Replacement Project $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - 2028 Sewer Pipe Replacement Project $ 4,073,856 $ 795,675 $ 3,278,181 $ - $ - $ - $ - $ - $ - $ - $ - 2029 Sewer Pipe Replacement Project $ 4,196,072 $ - $ 819,545 $ 3,376,526 $ - $ - $ - $ - $ - $ - $ - 2030 Sewer Pipe Replacement Project $ 4,321,954 $ - $ - $ 844,132 $ 3,477,822 $ - $ - $ - $ - $ - $ - 2031 Sewer Pipe Replacement Project $ 4,451,612 $ - $ - $ - $ 869,456 $ 3,582,157 $ - $ - $ - $ - $ - 2032 Sewer Pipe Replacement Project $ - $ - $ - $ - $ - $ - $ 4,612,027 $ - $ - $ - $ - Annual WPCP Improvements $ 1,740,431 $ 327,818 $ 337,653 $ 347,782 $ 358,216 $ 368,962 $ 380,031 $ 391,432 $ 403,175 $ 415,270 $ 427,728 Annual Sewer Maintenance $ 1,160,287 $ 218,545 $ 225,102 $ 231,855 $ 238,810 $ 245,975 $ 253,354 $ 260,955 $ 268,783 $ 276,847 $ 285,152 DEHP, Lead, and Zinc Treatment Evaluation $ - $ - $ - $ - $ - $ - $ 625,414 $ - $ - $ - $ - Primary Treatment, Aeration, Solids Condition-Driven Upgrades $ - $ - $ - $ - $ - $ - $ - $ 11,044,416 $ - $ - $ - WPCP Roofs $ 205,433 $ 205,433 $ - $ - $ - $ - $ - $ - $ - $ - $ - WPCP NPDES Permit Requirements $ 865,574 $ 163,035 $ 167,926 $ 172,964 $ 178,153 $ 183,497 $ 189,002 $ 194,672 $ 200,512 $ 206,528 $ 212,724 Stormwater Mgmg Program $ 844,869 $ 159,135 $ 163,909 $ 168,826 $ 173,891 $ 179,108 $ 184,481 $ 190,016 $ 195,716 $ 201,587 $ 207,635 General Plan Implementation $ 91,004 $ 17,141 $ 17,655 $ 18,185 $ 18,730 $ 19,292 $ 19,871 $ 20,467 $ 21,081 $ 21,714 $ 22,365 Disinfection, Chemical Building, Solids Thickening and Dewatering, & Plant Power Systems Condition-Driven Upgrades
$ 3,445,847 $ - $ 3,445,847 - $ $ - $ - $ - $ - $ - $ - $ - Aeration System Condition-Driven Upgrades $ 2,369,795 $ - $ - $ 2,369,795 $ - $ - $ - $ - $ - $ - $ - Secondary Treatment, Disinfection, 3W, Solids Dewatering, and Miscellaneous Plant Condition-Driven Upgrades
$ 13,355,859 $ - $ - $ 13,355,859 - $ $ - $ - $ - $ - $ - $ - Solids Digestion Condition-Driven Upgrades $ 3,248,052 $ - $ - $ - $ 3,248,052 $ - $ - $ - $ - $ - $ - Disinfection, Solids Digestion, and Solids Mixing $ 8,909,212 $ - $ - $ - $ - $ 8,909,212 $ - $ - $ - $ - $ - WPCP Administration, Maintenance, and Shop Building Improvements $ 3,065,565 $ - $ - $ - $ - $ 3,065,565 $ - $ - $ - $ - $ - Sewer Enterprise Study $ 358,216 $ - $ - $ - $ - $ 358,216 $ - $ - $ - $ - $ - Headworks, Chemical Building, Solids Dewatering, and Electrical Systems
$ - $ - $ - $ - $ - $ 12,536,988 - $ $ - $ - $ - $ -
Future Treatment Plant Project $ - $ - $ - $ - $ - $ - $ 4,000,000 $ 4,000,000 $ 4,000,000 $ 4,000,000 $ 4,000,000 Future Sewer Pipe Replacement Projects $ - $ - $ - $ - $ - $ - $ - $ 6,333,850 $ 6,523,866 $ 6,719,582 $ 6,921,169 Sanitary Sewer System Master Plan Projects - Existing User Contribution $ 2,154,417 $ 405,794 $ 417,968 $ 430,507 $ 443,422 $ 456,725 $ 470,427 $ 484,540 $ 499,076 $ 514,048 $ 529,469 Sanitary Sewer Master Plan (SSMP) Update $ 281,623 $ 53,045 $ 54,636 $ 56,275 $ 57,964 $ 59,703 $ 61,494 $ 63,339 $ 65,239 $ 67,196 $ 69,212 New 100-ft Secondary Clarifier $ - $ - $ - $ - $ - $ - $ - $ 24,304,889 $ - $ - $ - Total Escalated CIP Projects $ 2,891,290 $ 5,643,464 $ 17,633,671 $ 24,420,375 $ 55,542,763 $ 23,333,089 $ 47,288,575 $ 12,177,448 $ 17,396,760 $ 12,675,455 Total 5-Year CIP $ 106,131,563
Reduced Scope / Budget from Original CIP
Removed from Original CIP. Funded by other sources
Regulatory
Condition
Capacity
Attachment A
Cambios propuestos en las tarifas del servicio
de alcantarillado. Para obtener más
información, visite el sitio web de la:
www.chicoca.gov
City of Chico
Phone: (530) 894-4200
www.chicoca.gov
Notice of Public Hearing
On September 15, 2026, or as soon as possible
thereafter as the matter may be heard, the Chico
City Council will hold a public hearing during its
regularly scheduled meeting to consider proposed
changes to sewer service charges described in this
notice.

This notice has been sent to all property owners of
record and customers that receive sewer service
provided by the City of Chico.

What wastewater services does the City provide?
The City of Chico provides safe, reliable
wastewater collection, treatment, and disposal
services. Wastewater from homes and businesses
is carried through the City’s underground sanitary
sewer collection system and is treated at the City’s
Water Pollution Control Plant.

The City owns and maintains a network of roughly
288 miles of sanitary sewer pipelines, 18 pump
stations, and the Water Pollution Control Plant.

What is the purpose of sewer service charges?
Sewer service charges recover the cost of
maintenance, operation, replacement, and
improvement of the City sewerage facilities used for
the collection, treatment, and disposal of sewage.

What is the basis for the proposed charges?
Increased operational costs and major capital
improvements are necessary to address critical
condition, regulatory, and capacity-driven
infrastructure needs. Proposition 218 requires utility
charges to correspond to the cost associated with
providing the services, and that customers within
each user classification pay charges not exceeding
the proportional cost of services attributable to that
parcel. The City retained a third-party consultant,
Carollo Engineers, to prepare a Sewer Rate Study
that resulted in rate recommendations to sufficiently
recover revenue for infrastructure repair and
replacement needs as well as day-to-day
operational services, in compliance with
Proposition 218. The Sewer Rate Study report is
available on the City website:
https://chicoca.gov/Sewer-Rate-Study
Proposed Changes
to Sewer Service
Charges
Notice of Public Hearing
September 15, 2026
6:00 PM
Chico City Council Chambers
421 Main Street
Chico, CA 95928
Chico Water Pollution Control Plant Chico, PO Box 3420 City of Chico CA 95927 [NAME] [CITY, STATE, ZIP CODE] [MAILING ADDRESS] Attachment B
What are the proposed charges and when
would they go into effect?
The proposed charges are presented in this notice.

Sewer service charges for residential and
commercial customers consist of a fixed monthly
charge and volumetric rates based on winter water
consumption measured by California Water
Service Company in hundred cubic feet (HCF)
increments and provided to the City.

The fixed monthly charge is assessed on a per unit
basis for residential customers and per equivalent
dwelling unit (EDU) for commercial customers.

EDUs are calculated for each commercial customer
based on flow and customer class.

The volumetric rate is charged per HCF of each
customer’s average water consumption of the
previous winter water consumption period, which
runs from December through March. This winter
average is an industry-standard approach as a
proxy for sewer flow since low irrigation in this
period means most water consumed reaches the
sewer. All residential customers will be charged the
same rate ($/HCF). Commercial volumetric rates
differ by classification proportional to their sewer
system pressures.

The rates will adjust significantly in years 1 and 2
(November 2026 and July 2027) and increase 3%
annually in the subsequent three years.

What is the process for sewer service charges
to be changed?
Chico City Council will hold a public hearing on
September 15, 2026, or as soon as possible
thereafter. This hearing will consider adoption of the
proposed rate schedule. At the hearing, Council will
accept and consider all written Protests and hear all
oral comments. After the public hearing, if there are
written Protests submitted and not withdrawn that
represent a majority of the parcels that receive
sewer service, the City Council cannot adopt the
proposed rate adjustments. Oral comments are not
eligible for determining the existence of a majority
protest. The proposed rate schedule sets a
maximum threshold. If additional funding
opportunities become available, the City may reevaluate revenue sufficiency.

How do I object to the legality of the proposed
charges under the Proposition 218 process?
Written Objections must include the specific
grounds for alleging noncompliance of the
proposed rates with the Proposition 218 process.

Written Objections may be emailed, mailed or
personally delivered to the City Clerk at PO BOX
3420 Chico CA 95927 or delivered in person to the
City Clerk at 411 Main Street Chico CA 95928 and
must be received by the City Clerk by 5:00 p.m.,
September 8, 2026. Written Objections shall
include name and address/parcel number of the
objector, signature and email or address to which
a response should be sent. This is known as an
Exhaustion of Administrative Remedies
requirement and is separate from the Proposition
218 majority protest process described below.

All written Objections must be submitted within the
written Objection period. Failure to submit a timely
Objection in writing bars any right to challenge the
proposed rates through a legal proceeding. Note
that this deadline for submitting a written Objection
is one week earlier than the deadline for submitting
a written Protest. The City will review each written
Objection and respond in writing to all timely
written submittals.

How do I protest the proposed charges?
Owners of record of real property who pay sewer
rates, as well as customers who will be directly
responsible for paying the charge, may file a
written Protest against the proposed rate
adjustments. Only one written Protest per parcel
shall be counted in calculating a majority protest
per Proposition 218. Written Protests will be
treated as public records once opened.

Written Protests may be mailed to the City Clerk at
PO BOX 3420 Chico CA 95927 or delivered in
person to the City Clerk at 411 Main Street Chico
CA 95928. Protests will be received until close of
business (5:00 PM) on the public hearing date.

Protests may also be submitted at the Council
Meeting before close of the public hearing. To be
counted, Protests must include: the rate or charge
being protested, your name, parcel number and/or
service address, and your signature. Protests
submitted by email or other electronic means will
not be counted as formal written Protests.

Proposed Rate Schedule:

Customer Class 26/27
1 27/28 28/29 29/30 30/31
FIXED MONTHLY CHARGE2
Residential
House $32.00 $49.60 $51.09 $52.62 $54.20
Multi-Family $25.60 $39.68 $40.87 $42.10 $43.36
Duplex $28.80 $44.64 $45.98 $47.36 $48.78
Commercial
Bars w/o Dining $32.00 $49.60 $51.09 $52.62 $54.20
Brewery $32.00 $49.60 $51.09 $52.62 $54.20
Car Wash $32.00 $49.60 $51.09 $52.62 $54.20
Dorms $32.00 $49.60 $51.09 $52.62 $54.20
Hospital &
Convalescent $32.00 $49.60 $51.09 $52.62 $54.20
Hotels w/o Dining $32.00 $49.60 $51.09 $52.62 $54.20
Hotels w/Dining $32.00 $49.60 $51.09 $52.62 $54.20
Industrial
Laundry $32.00 $49.60 $51.09 $52.62 $54.20
Laundromat $32.00 $49.60 $51.09 $52.62 $54.20
Markets/Bakeries $32.00 $49.60 $51.09 $52.62 $54.20
Mortuary $32.00 $49.60 $51.09 $52.62 $54.20
Restaurants $32.00 $49.60 $51.09 $52.62 $54.20
School $32.00 $49.60 $51.09 $52.62 $54.20
All Other $32.00 $49.60 $51.09 $52.62 $54.20
VOLUMETRIC RATES PER HCF3
Residential
House $3.11 $4.82 $4.96 $5.11 $5.26
Multi-Family $3.11 $4.82 $4.96 $5.11 $5.26
Duplex $3.11 $4.82 $4.96 $5.11 $5.26
Commercial
Bars w/o Dining $3.19 $4.94 $5.09 $5.24 $5.40
Brewery $6.53 $10.12 $10.42 $10.73 $11.05
Car Wash $2.46 $3.81 $3.92 $4.04 $4.16
Dorms $2.92 $4.53 $4.67 $4.81 $4.95
Hospital &
Convalescent $2.90 $4.50 $4.64 $4.78 $4.92
Hotels w/o Dining $3.12 $4.84 $4.99 $5.14 $5.29
Hotels w/Dining $5.50 $8.53 $8.79 $9.05 $9.32
Industrial
Laundry $5.84 $9.05 $9.32 $9.60 $9.89
Laundromat $2.67 $4.14 $4.26 $4.39 $4.52
Markets/Bakeries $6.60 $10.23 $10.54 $10.86 $11.19
Mortuary $6.82 $10.57 $10.89 $11.22 $11.56
Restaurants $6.54 $10.14 $10.44 $10.75 $11.07
School $2.60 $4.03 $4.15 $4.27 $4.40
All Other $3.08 $4.77 $4.91 $5.06 $5.21

1. FY 26/27 rates will take effect in November 2026. Increases will occur in July of each fiscal year moving forward.

3. HCF = hundred cubic feet, equal to 748 gallons of water based on average winter consumption.

If the property is not metered by CalWater, or lacks sufficient metered data, then the average consumption for the applicable classification will be used to calculate the volumetric portion of the rate. (7.20 HCF for Single Family Residential, 5.50 for Multifamily).

Multi-family is defined as structures with adjoining, or common walls. All others shall be singlefamily (except duplexes).

To estimate your bill, use the City’s online estimated
sewer bill calculator here:
https://chicoca.gov/Sewer-Rate-Study
Attachment B

Chico City CouncilSeptember 15, 2026

Chico City Council
September 15, 2026