Poway City Council
November 18, 2025

November 18, 2025, Item #12
DATE:

TO:

FROM:

CONTACT:

SUBJECT:

Summary:

AGENDA REPORT CityofPoway
November 18, 2025
Honorable Mayor and Members of the City Council
Craig Schmollinger, Director of Finance (Ji
Craig Schmollinger, Director of Finance
(858) 668-4411 or [email protected]

CITY COUNCIL
Set Public Hearing for Proposed Five-Year Water, Recycled Water, and Wastewater Rates
This staff report recommends setting the public hearing date for water, recycled water and wastewater rates for January 20, 2026, and authorizing the mailing of the Proposition 218 notice to properties that receive one or more of these services at least 45-days before the noted hearing date.

The funding sources for water (including recycled water) and wastewater services are through the water and wastewater "Enterprise" funds, respectively for each service. Enterprise funds are discrete funding sources utilized to provide services that are funded primarily from user fees and charges.

These funds operate similar to a business where funding from user fees and charges (along with other smaller revenue streams) are designed to recover the costs of providing services, including for treating and supplying water in the water enterprise and wastewater collection and treatment services for the wastewater enterprise.

Four-year water, recycled water and wastewater rates were adopted by the City Council on November 2, 2021, effective each January 1 for 2022, 2023, 2024 and 2025. To ensure the ongoing financial sustainability of the water enterprise system staff recommended and City Council, in accordance with the procedures required by Proposition 218, approved passing through the San Diego County Water Authority (SDCWA) rate adjustments for 2025 beyond what was assumed in the water rate model to ratepayers effective in January 2025. This measure helped sustain the Water Enterprise Fund while helping mitigate against larger rate increases in the future.

Recommended Action:

It is recommended the City Council direct staff to set the public hearing for January 20, 2026 and proceed with the Proposition 218 process which includes mailing the notice of public hearing to ratepayers pursuant to California law at least 45 days prior to the January 20, 2026 Public Hearing.

Discussion:

On November 2, 2021, the City adopted new rate structures and four-year rate increases for water, recycled water, and wastewater rates that were implemented for calendar years 2022, 2023, 2024 and 2025. The proposal for water rates included assumed annual cost increase adjustments from SDCWA of a 6% adjustment, which were in-line with actual adjustments for calendar year 2023 and 2024.

SDCWA adopted rates for calendar year 2025 which equated to over double the modelled rate at an 1 of95
November 18, 2025, Item #12

13.52% increase to Poway, which would increase Poway's costs for raw water purchases by $1.27 million for the year. To help ensure the ongoing fiscal health of the water enterprise, a wholesale water pass-through adjustment was proposed and approved by the City Council, in accordance with the procedures required by Proposition 218, effective in calendar year 2025 which equated to be $0.32 per unit of water sold.

Included in the Finance Department work plan in the Fiscal Year (FY) 2024-25 budget was an update to the Water (including Recycled Water) and Wastewater Cost of Service Studies (COSS). On November 19, 2024 the City awarded a contract with Raftelis Financial Consultants, Inc. (Raftelis) to provide a comprehensive COSS update for both Water (including Recycled Water) and Wastewater enterprises.

Part of the deliverables from the COSS updates include recommended rate adjustments to ensure the ongoing fiscal sustainability of the water and sewer enterprises. Raftelis have been utility rate experts in the water and sewer rate setting field in California for over 30 years. Raftelis provided Water and Sewer Rate Models and recommendations resulting in the noted rate adjustments for calendar years 2022, 2023, 2024 and 2025. The City had also retained and worked with Raftelis on water and wastewater rates going back several rate cycles prior to the recent four-year rate adjustment cycle as well.

Staff has worked closely with Raftelis for the past nine months to model updates to the cost of providing safe and reliable water and wastewater services. These updates include operations and maintenance costs, wholesale water and recycled water purchase costs, wastewater treatment rates, and Capital Improvement Program (CIP) projects. Figures include the adopted FY 2025-26 budget, known and projected adjustments for future year costs, long-range Capital Improvement Plan (CIP) project needs, water sales volumes, new connections, wholesale cost adjustments, and experience factors by customer class. Experience factors are tied to customer classes commensurate with their use of and burden on the water or wastewater system. This can result in different adjustments to each customer class depending on how much each is utilizing the enterprise systems.

Cost Allocation Plan Update:

Like most agencies with enterprise funds, Poway utilizes a Cost Allocation Plan (CAP) to proportionally distribute the costs of general, citywide support services (i.e. Administration, Finance, Information Technology and Human Resources) to departments and enterprise funds which use and benefit from those services.

Allocating costs across funds is not unique to Poway and is legally permitted under State law. This process results in savings for residents and ratepayers as staff and support service costs are shared.

The current cost allocation plan was prepared a number of years ago and while it has been modified to reflect organizational changes in recent budget cycles, preparing a new cost allocation plan was identified as a priority by both the Budget Review Committee and the City Council. Preparing a new cost allocation plan included a comprehensive analysis of current citywide overhead allocations and preparation of a model that can be updated in future years. The new cost allocation plan figures will be used as part of the annual budget development process beginning in FY 2026-27 and have been incorporated into these water and wastewater COSS updates.

In summary, a CAP analyzes the annual support each central service department provides by using various metrics, such as number of full-time employees, budget size, or number of agenda items, to allocate costs fairly and equitably to all receiving departments. Costs are spread regardless of a receiving department or program's ability to reimburse for the support. The methodology used to develop this CAP follows guidelines set by the Office of Management and Budget (0MB), as well as Generally Accepted Accounting Principles (GAAP).
2 of95
November 18, 2025, Item #12
Importantly, the adjustments to charges to the water fund resulting from this CAP update resulted in less than $9,000 annual difference between the current cost allocation and the updated allocation.

This amount is less than 0.02% of the total cost of operating water services, indicating the indirect charges to the water fund have been in-line with the updated figures in the cost allocation plan.

Water and Wastewater Enterprise Reserves:

Financial reserves are utilized for many beneficial reasons in order to address anticipated future costs and uncertainty associated with operating complex utility systems. Reserve levels are set based upon city policy in concert With industry standards, state requirements, debt coverage requirements, and in alignment with best practices. Reserves are available to:
• Address timing differences between periodic cash inflows and outflows • Pay for unexpected or extraordinary operating expenses • Set aside funds for current and future identified CIP projects and anticipated capital requirements
• Pay for unexpected or extraordinary capital repair and replacement projects Both the water and wastewater enterprises have operating reserve minimums set at 90 days of operating expenses, with a target of 120 days of operating expenditures. Capital reserves are set for each enterprise at the rolling 5-year average capital improvement program cost, to ensure adequate funding for future projects and needs. These reserve levels are within American Water Works Association (AWWA) industry standards and strike a balance with adequate funding on hand versus setting reserve levels higher, which would require increasing rates for customers. In comparison the General Fund has reserve levels set at a higher level at 45% of operating expenditures, and doing something similar for the Enterprise funds would require increasing water and wastewater rates to achieve such a level.

The below recommended rate revisions are reflective of ensuring minimum reserve levels are met, with the goal of hitting target reserve levels, among meeting other functional needs.

Proposed Water Rates:

In November 2021, the City Council adopted four-year water rate increases for implementation in calendar years 2022, 2023, 2024 and 2025. The approved rates cover the increasing costs of providing safe, reliable water on demand to ratepayers.

Imported Water:

The largest cost factor for Poway in serving customers clean drinking water on demand is the cost to purchase raw water from the SDCWA. San Diego County has a semi-arid climate. Before 1947, the San Diego region relied on rainfall and groundwater to meets its water needs (SDCWA, Urban Water Management Plan 2020). As the economy and population grew, local water resources became insufficient to meet the region's water supply needs and required imported water from hundreds of miles away to support the growth. Much of the region's water is imported from northern California near San Francisco and Sacramento (i.e. the Bay-Delta).

Importing water is very energy and infrastructure intensive. Over time, the cost to transport this water increases as factors like energy prices increase. Investment by SDCWA into regional water supply and infrastructure projects to reduce reliance on imported water and mitigate the effects of natural 3 of95
November 18, 2025, Item #12
disasters, such as earthquakes, is also expensive. For example, SDCWA's investment into the Claude "Bud" Lewis Desalination Plant cost close to $1 B, but it gave the region a new drought-proof, locally controlled supply of water.

Imported water represents just over 60% of City water operating costs. When imported water costs increase, this significantly impacts City water rates which are passed on to customers. The SDCWA rate and charge increase to the City is 9.2% for calendar year 2026. In an effort to help mitigate impacts to member agencies, SDCWA took several actions to reduce the increases to rates including applying grant funding, delaying capital expenses and associated debt issuance costs, and trimming operating costs. Their rate increase was driven by an average rate and charge increase of almost 8% from the Metropolitan Water District (MWD), a major SDCWA water supplier, along with wholesale costs from operating the Claude "Bud" Lewis Desalination Plant. Additionally, the impacts of both the Rainbow and Fall brook Municipal Water District's detaching from SDCWA has resulted in an increase in SDCWA costs being spread among the remaining 23 member agencies that continue to receive water from the SDCWA. The SDCWA also has declining water sales to those remaining 23 member agencies which results in less water sold to spread SDCWA costs. The SDCWA actual water sales figures are reported downward by 17% for the 23 months ending May 31, 2025 respectively (source: SDCWA Staff Report for Fiscal Years 2026 & 2027 Budget, July 24, 2025). The result is an increase in costs spread among less units of water sold for the remaining SDCWA member agencies, including the City.

Water Capital Improvement Program:

The next largest factor driving the proposed revenue increases is rate-funded capital improvement projects to the water system. Rate-funded capital improvement projects are paid for via rates or reserves. The City's existing water system includes over $88 million in infrastructure necessary to provide associated services. This infrastructure includes water assets to transport water from the SDCWA system to the city's system, assets to treat the water to safe drinking levels, and assets to deliver safe, reliable water on demand to each rate payer's property. The following are some facts about the water system:
• 319 miles of transmission and distribution pipelines
• 8,890 water valves, 22 pressure-reducing stations and 15 pump stations (designed to raise water to higher elevations)
• 19 reservoirs (Lake Poway holds -one billion gallons of water) • One 24 million gallon/day water treatment plant
• 2,898 fire hydrants
• Approximately 60,000 tests are performed annually to ensure Poway water meets or exceeds the State and Federal standards for water quality
Historically the City has rate-funded its water capital improvement projects rather than funding through issuance of debt. Rate-funded capital projects are paid for via rates or reserves, not debt.

However, to improve the reliability, redundancy and resiliency of Poway's water system, in 2020 the City embarked on the Water Infrastructure Improvement Program (Water Program). This is the largest series of capital projects in the City's history. The Water Program is comprised of the Clearwell Bypass (Phase 1 ), the Clearwell Replacement (Phase 2), and the SDCWA Treated Water Facilities (Phase 3) projects. The Clearwell Bypass project has been completed and is in operation. The Clearwell Replacement project is in construction and roughly 75% complete, with commissioning expected in late Spring 2026. The SDCWA Treated Water Facilities project is currently in the design phase, working in coordination with both the Ramona Municipal Water District (RMWD) and SDCWA. These coordinated efforts have the potential for significant cost offsets to the City, which could help reduce the cost to City ratepayers. City staff are working diligently to realize some of these financial benefits, 4 of95
November 18, 2025, Item #12
including negotiating a water sales agreement with RMWD per a Memorandum of Understanding recently approved by both agencies' governing bodies.

As discussed in a November 17, 2020 water funding staff report, there are several approaches to financing these projects. They can be financed using a pay-go approach (using cash on hand and yearly rate increases to provide the necessary cash flow). They can also be debt or grant funded or a combination of all three. As staff had indicated in that report, comparing cash on hand to the estimated cost of the projects helps determine which funding option may be most appropriate. When cash on hand exceeds the estimated cost of the proposed project, there is a strong argument for pay­ go financing. When the estimated cost of the proposed capital projects exceed cash on hand, there is a strong argument for debt financing. Debt financing is a reasonable solution in that it provides the cash upfront to construct the projects while spreading the repayments out over a longer time horizon.

This helps create intergenerational equity by aligning the water CIP costs to the people who benefit from the project. When debt is issued, current ratepayers would not be responsible for fully funding projects today that will have a useful life beyond 30 years.

Another factor to consider when specifically looking at capital improvement projects funded by water ratepayers is how pay-go funding impacts the annual water rates. Water rates could be increased significantly over the next five years to fund the program on a pay-go basis. However, based on the estimated cost of the Water Program the annual increases to ratepayers would likely be so large that it would be financially unfeasible for many ratepayers. This would create an undue burden on current ratepayers and impact the current sustainability of the water enterprise.

Phases 1 and 2 of the Water Program have been primarily funded with debt issuances in the form of 2021 Water Revenue Bonds, and 2023 Water Revenue Bonds. Phase 3 of the Water Program is modeled to include another debt issuance to fund this portion of the project.

All other water CIP projects are funded through reserves, water rate revenue, grant proceeds, and water connection fees. Connection fees are paid to the City as new developments occur which pay for the proportional share of a properties new demand into the existing water system. Programming of $4.55 million in connection fee revenue, and $400 thousand in grant proceeds is included in the City's FY 2025-26 .adopted budget. Grant proceeds and the connection fee revenue paid from new development helps offset the revenue needed from water rates, which has a rate suppression effect.

Proposed Fixed/Variable Ratio Adjustment:

During the 2021 rate setting process, staff discussed the importance of the fixed/variable ratio. The fixed/variable ratio reflects the amount of revenue collected between fixed charges which are not dependent on water usage and volumetric, or variable, charges which are dependent on water usage.

This ratio is important for understanding the level of revenue stability. The more revenue collected via a fixed charge, the less likely the water system will be impacted by changes in volumetric ratepayer usage.

Under the current rate structure, the fixed/variable ratio was at 20/80% for 2022, moving tci the current 2025 split of 25/75%. The City Council opted not to significantly increase revenue recovered from fixed charges during previous rate adjustments due to the potential impacts on lower volume users. Alternatively, Council directed staff to slowly increase the fixed/variable ratio with each subsequent rate setting process, consistent with the requirements of Proposition 218.

Consistent with this direction, the current five-year rate model continues the incremental increase to the fixed/variable ratio to 28/72% for 2026 rates. Adjustments under the proposal for 2027-2030 will 5 of95
November 18, 2025, Item #12
result in an unknown fixed/variable ratio adjustment as SDCWA pass-through costs will not be known until late summer each year. The realized fixed/variable ratio is also impacted by actual water sale volumes each year.

Uniform Single-Family Residential Volumetric Rate:

Included in the rate recommendations is a transfer from a three-tiered increasing cost per tier volumetric water rate structure for Single Family Residential customers to a uniform "single-tier''water rate structure. This update is being proposed similarly with other water user classification groups, including multi-family residential, non-residential, landscape irrigation, and city potable water groups.

This approach standardizes charge methodologies across all customer classes, supporting equitable treatment of all customer classes.

Tiered volumetric rates have been utilized by a majority of water purveyors in California for a host of reasons, primarily for supporting conservation efforts mandated by the California Water Board. These conservation mandates include maximum residential indoor water use, reducing through 2030 as mandated by the State of California. Tiered single-family residential rates, in part, incentivize water conservation as the increase in cost for escalating tiers provides a financial dis-incentive to utilize large volumes of water.

However, recently there have been Court of Appeal decisions in San Diego County that successfully invalidated tiered water rates for two local water purveyors, based on rulings that the tiers did not reflect the cost of providing the water service as required by Proposition 218. (Patz v. City of San Diego (2025) 113 Cal.App.5th 225; Coziahr v. Otay Water District (2024) 103 Cal.App.5th 785) As a result, tiered rates are now very difficult to justify and vulnerable to legal challenges. Although one of the cases included a 70-page dissent of the majority opinion, each was met with a majority opinion that the tiered rate structure at issue did not support the data provided on increased costs for tiered rates. City staff is recommending moving to the uniform water rate structure as a more equitable and defensible structure, while affirming current rates being compliant with Proposition 218's cost of service principles.

Residential Water Adjustment Impacts:

Revenue requirements to meet ongoing costs of supplying safe and reliable water services necessitate adjustments to each year in the proposed five-year rate adjustment period. Year one (2026) requires an adjustment of 9.9%, where years two through five (2027-2030) require a 4% adjustment each year.

The 2026 adjustment reflects the impact of a 9.9% total revenue adjustment, which is broken down as City cost adjustments attributable to 4.1 %, and an SDCWA wholesale water rate increases to the City attributable to 5.8%. Years two through five adjustments are inclusive of only known City cost adjustments to maintain ongoing safe and reliable services, as SDCWA and San Diego Gas & Electric (SDG&E) future year adjustments are unknown figures to be passed along once known (see below on wholesale pass-through adjustments).

Table 1 below shows the estimated impact to residential customers who have a ¾" water meter and use 29 units of water over one bimonthly billing period (every two months). (Remainder of page intentionally left blank)
6 of95
November 18, 2025, Item #12
Table 1: Estimated Residential Impacts of Proposed Revenue Adjustments Debt Funding Option Existing Jan.2026 Jan. 20272 Jan. 20282 Jan. 20292 Jan. 2030:

Revenue Increase(%) N/A 9.9% 4.0% 4.0% 4.0% 4.0%
Estimated Water Bill1 $302.69 $351.12 $365.16 $379.77 $394.96 $410.76 Bimonthly Impact($) N/A $48.43 $14.04 $14.61 $15.19 $15.80 Monthly Impact($) N/A $24.22 $7.02 $7.30 $7.60 $7.90

1. Assumes the average residential customer has a¾" meter and uses 29 units of water bimonthly.

2. Figures are for Poway revenue adjustments and do not include future year pass-through adjustments from SDCWA for wholesale water or SDG&E for energy costs.

As the table shows, the average residential customer would be paying $48.43 more per bimonthly billing period for water following adoption with the proposed rate adjustment, which equates to $24.22 per month.

Table 2 below shows the Single Family Residential (SFR) impacts of the proposed Year 1 adjustments, for usage at different levels through a ¾" meter.

Table 2: Estimated Residential Impacts of Proposed 2026 Revenue Adjustments $2,500
$2,000
$2,500
$2,000
$500
$0
■Current BUI
■ Proposed BUI· Uniform
Impact{$)• Uniform
Impact(%)-Uniform
Recycled Water:
$165.47 s195•13
$165.47
lOunlb
$165.47
$195.13
$29.66

17.9%
SFR Bimonthly Impacts at Different Usage Levels -3/4" Meter -Uniform Rates $302.69 5351•12
$302.69
29unlts
$302.69
$351.12
$48.4'

16.0%
$364.93
37unlb
$364.93
$416.80
$51.87

14.2%
$512.75
S6unlts
$512.75
$572.79
$60.04

11.7%
$933-11 $934.03
$.3.ll
lOOunlts
$983.11
$934.03
-$49.08
-5,0%
$2,052,11
$1,517.61
$1,517.61 $:Z.052.11
lSOunlts 200unlts
S1.s11.61 $2,052.11
$2,344.53 $1,755.03
-$173.08 -$297.08
-11.,11% -14.5%
The City serves roughly 212 recycled water customers located primarily in the South Poway Business Park. Recycled water is purchased from the City of San Diego, then sold to these customers utilizing the City's recycled water infrastructure. The largest cost associated with serving recycled water to customers is the actual cost of purchasing recycled water from the City of San Diego, representing almost 80% of the total cost of providing recycled water services. The City of San Diego recently increased recycled water rates anticipated to the City by roughly 45%.

Recycled water customers pay the same bi-monthly meter service charges as potable water customers, based on meter size, as they occasionally use the potable water system when recycled water is unavailable. Recycled water customers also pay a uniform volumetric rate. Recycled water charges are based on the costs associated with the City's recycled water system, which includes the 7 of95
November 18, 2025, Item #12
noted recycled water purchase costs from the City of San Diego. Given the large increase for purchasing recycled from the City of San Diego, and minor increases for the City to operate the recycled water system, the volumetric rate for recycled water has been calculated to increase by 23% for the year 1 adjustment in 2026.

Wholesale Water, Wastewater Treatment and Energy Cost Pass-Through Provisions:

California Government Code Section 53756 was adopted in 2009 and allows agencies providing water and wastewater services to adopt a schedule of fees and charges for a period of up to five years that authorize automatic adjustments based on wholesale charges for those wholesale costs outside of a retail agencies control. For the City, wholesale pass through costs would come from SDCWA for wholesale water charges, for recycled water services this includes wholesale recycled water purchases from the City of San Diego, and the Metro Wastewater Joint Powers Authority for wholesale wastewater treatment costs. These costs are all outside of the control of the City. Therefore, these costs are being included through the current Proposition 218 process to authorize the pass-through of future year adjustments that have yet to be identified.

Energy cost increases from SDG&E for wholesale energy costs are proposed to automatically adjust based on the Energy Rates for the Consumer Price Index for All Urban Customers, Energy in San Diego -Carlsbad ("CPI"), measured from September to September, to the extent the actual cost increases for purchased energy exceed those projected for energy costs.

The City relies almost exclusively on the SDCWA for its raw water supply and therefore does not have a choice in accepting rate adjustments from its wholesale water provider. As a best practice, almost all water agencies (21 out of 23) in San Diego County have a pass-through provision in their adopted rate schedules allowing them to automatically pass on any increases in SDCWA rates to customers upon providing thirty days' notice of the increased pass-through cost. Poway does not currently have a pass-through provision which is why staff needed to bring forward a one-year adjustment (and comply with Proposition 218 procedures) to incorporate the SDCWA rate increases into the City's water rates when they took effect in January 2025. These industry standard, best practice, pass­ through provisions are being incorporated with this full cost of service study update, and will be incorporated into the Proposition 218 notice that will be sent at least 45 days prior to the public hearing.

If approved in the current Proposition 218 process for the next five years, at least 30 days before implementing any such pass-through increases, the City will provide written notice of the rate increase or increases to customers.

Proposed Wastewater Rates:

In November 2021, the City Council adopted four-year wastewater rate increases to cover calendar years 2022, 2023, 2024 and 2025. Rate adjustments of 4% annually were approved over the four-year period. The approved rates cover the increasing costs of providing safe, reliable wastewater collection, treatment and disposal services on demand to ratepayers. The City operates and maintains the collection system infrastructure and associated operations and maintenance and CIP projects to maintain the system. The City outsources for the wastewater treatment and disposal services with the Metro Wastewater Joint Powers Authority.

Wastewater Treatment:

The most significant rate driver for the proposed revenue increases is wastewater treatment costs, 8 of95
November 18, 2025, Item #12
those services are provided by the Metro Wastewater Joint Powers Authority. Several municipalities share in the use of the City of San Diego's regional wastewater facilities that provide treatment services for wastewater conveyed to those facilities. Wastewater treatment represents almost 42 percent of all wastewater operating expenses. When wastewater treatment costs increase, this impacts City wastewater rates. The largest factor increasing wastewater treatment costs is the San Diego Pure Water project. San Diego's Pure Water project is a multi-year project that is projected to supply one­ third of San Diego's water supply locally by 2035. Several years ago, staff began incorporating these costs into rates as part of a long-range financial management strategy to mitigate the impacts of this project to ratepayers. Funds collected have been set aside in reserves. As such, a combination of reserve drawdowns and rate increases will be used over the coming years to temper the impacts to ratepayers. Additionally, a wastewater treatment pl antis designed to treat certain types of waste. As people dispose of pharmaceuticals, food waste, cooking oil, industrial chemicals, etc. down the wastewater system, the treatment process gets extended which increases costs.

Wastewater Rate Adjustment Impacts:

Recommended adjustments for wastewater services include no changes for each of the first two years (0% in 2026 and 0% in 2027), and 3% adjustments each year for the last three years of the five-year rate study period (2028, 2029 and 2030).

Like water, the impacts in the first year will be uneven as a result of the COSS process where costs are analyzed by customer class resulting in changes between these groups. The adjustments are necessary to fund the costs of wastewater collection and treatment, capital infrastructure, and operational expenses. These proposed rate increases for 2028, 2029 and 2030 reflect the use of reserves to temper the impacts to rate payers during 2026 and 2027. Funds to cover Poway's estimated share of the San Diego Pure Water project were set aside as part of a strategic financial management decision to help mitigate the impacts to rate payers.

The next largest factor driving the proposed revenue increases is rate-funded capital improvement projects. Rate-funded capital projects are paid for via rates or reserves; no debt is currently used to fund capital projects. The City of Poway's existing wastewater system includes over $37 million in infrastructure necessary to provide associated services. Rate-funded capital is also being proactively invested in the rehabilitation and repair of the wastewater infrastructure to ensure Poway continues to provide safe, reliable, and affordable wastewater services. Wastewater infrastructure includes infrastructure to transport wastewater from the City to various treatment plants within the County of San Diego in a safe and reliable manner including over 190 miles of wastewater pipes, five lift stations (designed to raise wastewater material to a higher elevation}, and over 4,030 maintenance covers.

Rate, grant, and connection fee-funded CIP projects are currently programmed at approximately $14 million over the next five years, or slightly more than $2.8 million per year on average. Funding of $2.44 million in connection fee revenue, and $600 thousand in grant revenue is programmed in the City's current FY 2025-26 budget to pay for various capital improvement projects. Grant proceeds and connection fee revenue paid from new development helps offset the revenue needed from wastewater rates, which has a rate suppression effect.

Table 3 shows the effects of each year's adjustments for an average residential customer. These adjustments include a reduction in January 2026 rate adjustments for this customer group as the cost incurred to serve this group has gone down slightly.
9 of95
November 18, 2025, Item #12
Table 3: Estimated Residential Impacts of Proposed Revenue Adjustments Debt Funding Option Existing Jan. 2026 Jan. 20272 Jan. 20282 Jan. 20292 Jan. 20302 Revenue Increase(%) N/A 0% 0% 3% 3% 3%
Estimated Wastewater Bill1 $115.03 $112.86 $112.86 $116.27 $119.86 $123.48 Bimonthly Impact($) NIA -$2.17 $0.00 $3.41 $3.59 $3.62
Monthly Impact($) N/A -$1.09 $0.00 $1.71 $1.79 $1.81

1. Assumes the average residential customer has 15 units of winter wastewater flow bimonthly.

2. Figures are for Poway revenue adjustments and do not include future year pass-through adjustments from Metro JPA for wholesale wastewater treatment costs.

Table 4 below shows the impacts of the first year's revenue increase to fund the costs of wastewater collection and treatment, operation, maintenance, and replacement of infrastructure along with maintaining appropriate reserves across various wastewater generation levels. As shown below, the cost of providing services has changed between customer classes. As such this update results in a decrease in rates to single family residential rates even with a 0% revenue adjustment for 2026. Non­ residential rates increased slightly as the cost to serve these customers went up following updates to the wastewater COSS.

Table 4: Estimated Residential Impacts of Proposed 2026 Revenue Adjustments $180
$160
$140
$120
$100
$80
$60
$40
$20
$0
■ Current Bill
■ Proposed Bill
Impact($)
Impact{%)
Wastewater SFR Bimonthly Bill Impacts at Different Usage Levels II
5 cct
$60.43
$59.86
-$0.57
-0.9%
15 ccf
$115.03
$112.86
-$2.17
-1.9%
19 ccf
$136.87
$134.06
-$2.81
-2.1%
26 ccf
$164.17
$160.56
-$3.61
-2.2%
Combined Household Rate Adjustment Impacts:
37 ccf
$164.17
$160.56
-$3.61
-2.2%
Over 86% of customers in the City receive both water and wastewater services for their properties.

Providing a household anticipated impact from the noted revenue and rate adjustments will likely have value for most customers. Table 5 below shows the SFR impacts of the proposed Year 1 adjustments, for usage at different levels through a¾" meter, for both water and wastewater services combined.
(Remainder of page intentionally left blank)
10 of95
November 18, 2025, Item #12
Table 5: Estimated Residential Combined Impacts Proposed 2026 Revenue Adjustments $2,500
$2,000
$1,500
$1,000
$500
so
■ Current Bimonthly em
■ Proposed Bimonthly Bill-Uniform
Impact ($)-Uniform
Impact(%)· Uniform
Community Outreach:

SFR Combined Bimonthly Bill Impacts at Different Usage Levels -3/4" Meter -Uniform ss11.19 SS29.10 ss7;.41
$253.20 $466.86 $529.10
10 units 29unlts 37unlts
$253.20 $466.86 $529.10
$281.60 $511.79 $577.47
$28.40 $44.93 $48.37

11.2% 9.6% 9.1%
S733.46
$676.92 /
$676.92
56 units
$676.92
$733.46
$56.54

8.4%
$1,147.28
$1,147.28
100 units
$1,147.28
$1,094.70
-$52.58
·4.6%
$1,681.78
I
$1,681.78
150 units
$1,681.78
$1,505.20
-$176.58
·10.5%
$2,216.28
I
$2,216.28
200 units
$2,216.28
$1,915.70
-$300.58
·13.6%
To help the community understand the impacts of the proposed pass-through rate increases, staff updated the residential bill estimator tool (poway.org/Rates-Fees). This will help evaluate how the proposed increases impact their specific usage patterns. This tool, as well as information specifically about the majority-protest public hearing, and proposed rates, will be posted to the homepage of the City's website and the Water and Sewer Services section of the Finance Department web page. This information will also be actively communicated to the public via the Poway Today e-newsletter.

Timeline:

The following graphic shows the proposed rate cycle for the potential rate adjustment for year 1 (Calendar Year 2026). Subsequent year adjustment would be effective each January 1 for the remaining 4-years in the proposed 5-year rate adjustments (2027, 2028, 2029, and 2030).

Set Public Hearing: Mail 218 Notice: Public Hearing: Rates Effective:

November 18, 2025 By November 20, 2025 January 20, 2026 Following adoption For future pass-through rate adjustments, at least 30 days before implementing any such pass­ through increases, the City will provide written notice of the rate increase or increases to customers.

Environmental Review:

This action is not subject to review under the California Environmental Quality Act (CEQA). 11 of 95
November 18, 2025, Item #12
Fiscal Impact:

There is no direct fiscal impact associated with this staff report because it only sets the public hearing.

However, based on the information contained in this staff report, sufficient revenues to fund operations, investment in capital infrastructure, and appropriate reserve levels will be generated from the recommended water, recycled water, and wastewater revenue increases. Over the next five-year period, it is estimated approximately $33.0M in additional water revenues will be generated while approximately $1.SM in additional wastewater revenues will be generated if the proposed rates are adopted at the public hearing.

Safe reliable water delivered on demand to an average residential ratepayer cost under two pennies per gallon.

Public Notification:

The California Constitution, Article XIIID, Section 6, states that local governments must hold a Majority­ Protest Public Hearing and notify property owners and/or other eligible recipients at least 45 days in advance of the public hearing related to proposed water, recycled water, and wastewater rates. The notice required by Proposition 218 will be mailed at least 45 days prior to the public hearing, or on or before November 20, 2025. The public hearing, at which eligible ratepayers can protest proposed increases should they desire to do so, will take place as follows:

Attachments:

Tuesday,January 20, 2026 at 7:00 p.m.

City of Poway Council Chambers
13325 Civic Center Drive
Poway, CA 92064
A. Notice of Public Hearing
B. City of Poway Water and Wastewater Cost of Service and Rate Study Report (11/10/25, subject to revision based on comments received or required revisions) Reviewed/Approved By:

Assistant City Manager
12 of95
Reviewed By:

Alan Fenstermacher
City Attorney
November 18, 2025, Item #12
The City is committed to providing the highest quality
water and wastewater services at the lowest possible rates.

To keep this commitment, the City regularly evaluates
infrastructure needs, and operations and maintenance costs for the upcoming years. In compliance with Proposition 218, enclosed in this notice are the proposed rate adjustments for 2026 through 2030. The rate adjustments being considered will become effective upon adoption for Year 1 (2026)
and January 1 of each year and reflected on bimonthly bill statements following the effective dates. Details on the written protest and written objections process is located on page 5 of this notice.

The City of Poway is mailing this notice to you
because you are a water and/or wastewater customer
responsible for payment of water and/or wastewater
fees, or you are the owner of record for a property
that receives water and/or wastewater service. This
notice describes proposed adjustments to water and
wastewater rates, rate structure changes, and provides
notice of the upcomirig public hearing at which these
proposed changes will be considered by the Poway City
Council.

For rates information and
links to resources quoted
in this notice, scan this
QR code or visit:
poway.org/rates-fees.

Proposed Changes to
Water and Wastewater Rates
The City of Poway provides safe, reliable water on demand to its customers and purchases nearly 100 percent of its water from the San Diego County Water Authority (SDCWA). The cost to purchase and treat imported water continues to increase. The City proactively plans for increases in these costs, along with costs associated with operations, maintenance, and replacement of infrastructure along with maintaining appropriate financial reserves. To accommodate these increases, the City is proposing adjustments in potable and recycled water rates over the next five years.

The City of Poway maintains a wastewater system that provides customers with wastewater collection, treatment and conveyance services to the San Diego Metropolitan Wastewater System (Metro) where the wastewater is treated at the Point Loma Wastewater Treatment Plant and then discharged into the ocean or into San Diego's advanced treatment facilities for reuse. The City proactively plans for increases in costs associated with operations, maintenance, and replacement of infrastructure along with maintaining appropriate financial reserves. The City also pays a percentage share of the operation, maintenance, and capital replacement costs of the Metro system. To accommodate these increases in costs, adjustments in wastewater rates and charges over the next five years are being proposed.

A five-year rate setting process strikes a balance between investor preferences and flexibility, while noting additional assurances with the pass-through provisions noted further in this notice. A five-year period is long enough to increase investor confidence (see "Debt Financing" for more details) while still short enough to allow rate changes if future projections are different than anticipated.
0 For additional information on how your rates have been calculated, please refer to the staff report on November 18, 2025 titled "Set Public Hearing for Proposed Five-Year Water, Recycled Water, and Wastewater Rates."
13 of95 ATTACHMENT A
November 18, 2025, Item #12

PASS-THROUGH INCREASES AND ADJUSTMENTS
The City incurs wholesale costs from third party agencies to provide water, recycled water and wastewater services. For water services these include energy costs from San Diego Gas & Electric (SDG&E) and wholesale water purchase costs from the SDCWA, which alone represent over 60% of the costs to provide safe and reliable water services to customers. For wastewa- ter services this includes wholesale wastewater treatment and disposal services from Metro. For recycled water services this includes wholesale recycled water purchases from the City of San Diego.

To avoid operational deficits, depletion of reserves, and inability to address water, recycled water and wastewater capital infra­ structure needs, the City is proposing to adopt an ordinance that would authorize the City, commencing February 1, 2026, and at any time through and including December 31, 2030, to pass through any increases in purchased water wholesale costs from SDCWA and increases to SDCWA fixed monthly charges

WATER INFRASTRUCTURE IMPROVEMENTS
With the goal of increasing the reliability of drinking water for wa­ ter customers now and generations to come, the City of Poway has undertaken the largest capital improvement program (CIP) in the city's 45-year history.

The CIP includes replacing the clearwell (water storage reservoir) at the water treatment plant and new treated water connec­ tion(s) and redundant pipeline(s). Before replacing the clearwell, a temporary bypass system was constructed. The clearwell replacement project is approximately 75 percent complete with commissioning expected in late Spring 2026. The SDCWA treated water facilities project is currently in the design phase, working in coordination with both the Ramona Municipal Water District (RMWD) and SDCWA. These coordinated efforts have the potential for significant cost offsets to the City, which should help reduce the cost to City ratepayers.

These infrastructure improvement projects were in the planning stage for a long time and are moving forward on schedule and within budget.

For more information: poway.org/water-projects.
14 of 95
("SDCWA Charges"); increases in wholesale wastewater treat­ ment and disposal costs from Metro; and increases in wholesale recycled water costs from the City of San Diego. Energy cost increases are proposed to automatically adjust based on the Energy Rates for the Consumer Price Index, All Urban Customers, Energy in San Diego -Carlsbad ("CPI"), measured from Septem­ ber to September, to the extent the actual cost increases for pur­ chased energy exceed those projected for energy costs ("Energy Inflationary Increase" and collectively, the "Pass-Throughs").

Any and all Pass-Through Increases and Adjustments shall in no event result in rates exceeding the City's cost of providing water, recycled water or wastewater services to the City's customers.

Prior to implementing any Pass-Through Increases and Adjust­ ments, the City will provide written notice of increases or adjust­ ments to customers not less than 30 days prior to the effective date of the pass-through increases.

DEBT FINANCING
The capital projects described in this notice are being financed through a combination of rate revenue, connection fee revenue from new development, grant proceeds, and debt issuance.

Based on the cost of these projects and the impact to current ratepayers, the City has explored financing alternatives. Debt financing is a reasonable solution in that it provides the cash up­ front to construct the projects while spreading the repayments out over a longer time horizon. This helps create intergenerational equity by aligning the water CIP costs to the people who benefit from the project. When debt is issued, current ratepayers would not be responsible for fully funding projects today that will have a useful life beyond 30 years.

The City issued a series of water bonds to fund the Water Infra­ structure Improvement Program in 2021 and 2023 and is planning another round of issuances for the treated water connections and redundant pipeline projects commencing in 2026. The pro­ posed five-year rate increases give investors assurances that the City will have a sufficient revenue stream to pay the annual debt service, which helps to lower the cost of debt and the impacts to ratepayers. While this debt financing plan helps ensure the City has a solution in place to fund the program, City staff is also committed to pursuing every available grant opportunity these projects may be eligible for, along with noted joint ventures to help reduce costs.

November 18, 2025, Item #12
CURRENT AND PROPOSED WATER RATES*
5/8" 72.69 81.54 84.81 88.21 91.74 95.41
3/4" and 1" fire 98.27 113.03 117.56 122.27 127.17 132.26 1· 149.41 176.03 183.08 190.41 198.03 205.96
11/2" 277.27 333.52 346.87 360.75 375.18 390.19
2· 430.67 522.50 543.40 565.14 587.75 611.26
3" 916.53 1,120.96 1,165.80 1,212.44 1,260.94 1,311.38
4" 1.632.50 2,002.89 2,083.01 2,166.34 2,253.00 2,343.12 6" 3,345.71 4,113.23 4,277.76 4.448.88 4,626.84 4,811.92 8" 6,158.49 7,577.96 7,881.08 8,196.33 8,524.19 8,865.16 Single Family Residential
Tier 1: 1-20 Units 6.72 N/A N/A N/A N/A N/A
Tier 2: 21-56 Units 7.78 N/A N/A N/A N/A N/A
Tier 3: 57+ Units 10.69 N/A N/A N/A N/A N/A
Uniform Rate N/A 8.21 8.54 8.89 9.25 9.62
Recycled Water 5.68 6.96 7.24 7.53 7.84 8.16
Landscape Irrigation 9.41 N/A N/A N/A N/A N/A
Non-residential 7.29 N/A N/A N/A N/A N/A
Multi-family Residential 6.88 N/A N/A N/A N/A N/A
City Potable Usage 7.29 N/A N/A N/A N/A N/A
Uniform Water Rates 1 unit = 7 48 gallons
In light of recent court cases challenging tiered volumetric water rates, the City is moving to a uniform water rate structure as a more equitable and defensible structure, while affirming current rates being compliant with Proposition 218's cost of service principles.
*Water Rate Notes
The rates that may be implemented on or after January 21, 2026 do not include any projected increases in the wholesale water purchase costs from the San Diego County Water Authority that may be imposed on the City, in energy costs from San Diego Gas & Electric, and recycled water wholesale purchase costs from the City of San Diego. Such increases will be passed through directly as they are adopted by the respective service providing agency for wholesale water and recycled water services, and through a consumer price index adjustment for energy cost increases as earlier described following at least 30-day notice to service provided properties for water and recycled water wholesale costs.

Any water rates or fees associated with water service, including raw water, not addressed within this notice shall remain in full force and effect as previously adopted by the Poway City Council. 15 of 95
November 18, 2025, Item #12
CURRENT AND PROPOSED WASTEWATER RATES*
Residential
Single Family Residential 5.46 5.30 5.30 5.46 5.63 5.80 Multi-family & Mobile Home 6.85 6.97 6.97 7.18 7.40 7.63 Non-Residential
General Commercial 5.91 5.96 5.96 6.14 6.33 6.52
Medium-low 6.61 6.76 6.76 6.97 7.18 7.40
Medium 7.42 7.21 7.21 7.43 7.66 7.89
Medium-high 7.58 7.90 7.90 8.14 8.39 8.65
High 10.44 10.71 10.71 11.04 11.38 11.73
Light Industry 6.42 6.49 6.49 6.69 6.90 7.11
Industrial Special User 6.48 6.60 6.60 6.80 7.01 7.23
Government & Membership 4.85 5.94 5.94 6.12 6.31 6.50 Organizations .

Churches 5.91 6.06 6.06 6.25 6.44 6.64
Elementary School (ADA) 5.98 6.12 6.12 6.31 6.50 6.70
Secondary & High School 5.93 6.07 6.07 6.26 6.45 6.65 (ADA) *Wastewater Rate Notes
The rates that may be implemented on or after January 21, 2026 do not include any projected increases in the wholesale wastewater treatment and disposal service costs from San Diego Metropolitan Wastewater System that may be imposed on the City. Such increases will be passed through directly as they are adopted by the San Diego Metropolitan Wastewater System following at least 30-day notice to service provided properties.

How Wastewater Rates are Calculated
Single family residential wastewater flow based on 85% of lowest winter water use averaged over the past three years. Multi-family and mobile home customers' wastewater flow is calculated based on 75% of bimonthly water use for accounts without a landscape meter and 85% of bimonthly water use for accounts with a landscape meter. Non-residential customers' wastewater flow is calculated based on 75%, 85% or 90% of bimonthly water use depending on customer class. Wastewater flow for schools is estimated based on the average flow per student per day using 75% or 85% of the water use from the March/April billing period. 16 of95
November 18, 2025, Item #12

PROPOSED RATE CHANGE PROTESTS AND OBJECTIONS
Protests
As part of the rate setting process, on
January 20, 2026, the City of Poway will
conduct a public hearing on the proposed
changes to water and wastewater rates
and will consider all oral and written pro­
tests to the proposed changes. Oral com­
ments at the public hearing will not qualify
as formal protests unless accompanied by
a written protest. Only one written protest
will be counted per identified parcel. While
email is not an official rate protest mecha­
nism under California law, the City Council
Objections
Objections may be submitted pursuant
to Government Code section 53759.1,
and any person that wishes to challenge
the rates in a legal proceeding must file
an objection, which complies with the
requirements detailed below. While the
same person or entity may submit both
a protest and an objection, to be valid,
protests and objections must be submit­
ted separately, as clearly labeled, distinct
documents.

Requirements for a Valid Objection

1. Must include a clear statement that it
is an objection to the proposed water
or wastewater service rates.

2. Must be filed separately from pro­
tests.

3. Must include the name of the record
owner or customer of record and the
assessor's parcel number or service
address associated with the objector's
parcel that is subject to the proposed
water or wastewater service rates.

4. Must include the specific subsections
of the California Constitution Article
17 of95
values resident input and will read all email
correspondence regarding rates.

Written protests must include:

A description of the property, such
as the address or assessor's parcel
number; and
The name and signature of the cus­
tomer submitting the protest.

The City Council will receive a final tabu­
lation of all written protests received by
the City Clerk. Written protests must be
received by the City Clerk's office no later
than 12 p.m. January 20, 2026, or can be
submitted in writing in the Council Cham-
XIII D, section 6(b) or any other appli­
cable law that the objector believes
would be violated by the approval
and/or imposition of the proposed
water service or wastewater rates.

5. Must include a detailed explanation,
with references to the Water and
Wastewater Cost of Service and Rate
Study Report, legal authority, and any
additional data or evidence the objec­
tor chooses to present that will enable
the City to understand the grounds
for the objector's claim that the
proposed water or wastewater service
rates do not comply with Proposition
218 or any other applicable law.
a) an objection may include expert
analysis in support of the objec­
tion.
• b) if an objection includes expert
analysis, the expert's contact in­
formation and statement of their
qualifications must be included.

6. Must include the original signature
of the objector. As such, electronic
objections will not be valid.

7. To be valid, all written objections must
include the information listed above
and be received by the City Clerk
bers before the public hearing is closed.

If a majority of the affected customers
do not file written protests of the pro­
posed rate changes, the Council will then
consider and may adopt the rate changes
described in this notice. If a majority of af­
fected customers file written protests, the
City Council will not adopt the proposed
rate adjustments and the City will recon­
sider the rate structure and rates.

Please send written protests to:

City Clerk of the City of Poway
PO Box 789
Poway, CA 9207 4-0789
of the City of Poway by 5 p.m. on
January 5, 2026, at the address above
for protests. Hours for in person
objection submittal are 7:30 a.m. to
5:30 p.m. Monday through Thursday,
closed every other Friday with open
Friday hours of 8 a.m. to 5 p.m.

Prior to the close of the public hearing, the
City Council will consider and respond in
writing to any timely, valid written objec­
tion. The City's response will explain the
substantive basis for retaining or altering
the proposed water or wastewater service
rates in response to the written objection,
and, if applicable, the grounds for not
making any amendments in response to
the objection. The proposed water and
wastewater service rates are subject to
Government Code section 53759. You are
hereby notified pursuant to Government .

Code section 53759 that any judicial
action or proceeding to attack, review,
set aside, void, validate, or annul the City
Council's adoption of the proposed water
service rates must be commenced within
120 days of the effective date or the date
of the final passage, adoption, or approval
of the ordinance or resolution adopting
the water or wastewater service rates,
whichever is later.

November 18, 2025, Item #12
PO Box789
Poway, California 92074-0789
poway.org

DATED MATERIAL -DO NOT DELAY DELIVERY
Important information
about your WATER and
WASTEWATER account!
How were rates determined? Changes to how Poway's water and wastewater rates are structured involve a deliberate series of steps to ensure rates remain affordable, fair, and equitable.

First. future demands on our
water and wastewater systems are
projected, as well as water quality
impacts, potential risks to system
reliability, and anticipated changing
conditions to sustainability.

Ne)(t, specific water and wastewater
infrastructure improvements are prior­
itized and incorporated into the frame­
work. These projects support near-and
long-term needs, from regular system
operations and maintenance to proactive
investments to improve system quality,
reliability, and sustainability.

Finally, a third-party rate consultant leads a
cost of service study in partnership with City
Council and staff. The study designs a legally
compliant rate framework that recovers
water and wastewater costs across different
customer classes. These studies are typically
updated every four to six years to ensure the
rate design is still fair and equitable. The most
recent full cost of service study was per­
formed in December 2019 for rates effective
during calendar year 2020.

If you have any questions regarding this notice, please call (858) 668-4401. 18 of 95
Water and Wastewater Cost of Service and
Rate Study Report
Report / November 10, 2025

CITY OF POWAY

ATTACHMENT B
19 of 95
November 18, 2025, Item #12
~ RAFTELIS
November 18, 2025, Item #12
20 of95
November 18, 2025, Item #12
~ RAFTELIS
November 10, 2025
Craig Schmollinger
Director of Finance
City of Poway
13325 Civic Center Drive
Poway, CA 92064
Subject: Water, Recycled Water, and Wastewater Cost of Service and Rate Study Dear Mr. Schmollinger,
Raftelis is pleased to provide this Water, Recycled Water, and Wastewater Cost of Service and Rate Study Report (Report) for the City of Poway (City). The overall goal of the study was to develop updated rates for the City for the next five fiscal years (FY 2026-FY 2030) that are fair and equitable and in alignment with Proposition 218 requirements.

The major objectives of the study include the following:

1. Develop five-year financial plans for the water and wastewater enterprises through FY 2030 that sufficiently fund the City's operating costs, debt obligations, prudent reserves, and necessary capital expenditures

2. Review and revise as necessary the current water and wastewater rate structures

3. Perform a cost-of-service analysis to equitably allocate costs across customer classes

4. Propose equitable water, recycled water, and wastewater rates for FY 2026 to FY 2030 This Report summarizes the key findings and recommendations related to the development of the financial plans and proposed rates.

It has been a pleasure working with you and we thank you, Ms. Liabel Menguita, and other City staff for the support provided during this study.

Sincerely,
Sudhir Pardiwala
//£2;__2
ly'~k~_)
Senior Principal
611 Wilshire Blvd Suite 900 PMB 1009
Los Angeles, CA 90017
www.raftelis.com
21 of95
Lindsay Roth
~ w»r!Zo'c
Senior Consultant
November 18, 2025, Item #12
22 of 95
November 18, 2025, Item #12
Table of Contents

1. EXECUTIVE SUMMARY ............................................................ 1

1.1. SYSTEM OVERVIEW ............................................................................. 1

1.2. METHODOLOGY .................................................................................... 1

1.2.1. Water Utility ................................................................................................................ 1

1.2.2. Wastewater Utility ...................................................................................................... 2

1.3. PROPOSED FINANCIAL PLANS ........................................................... 2

1.3.1. Water Utility Financial Plan ....................................................................................... 2

1.3.2. Wastewater Utility Financial Plan ............................................................................. 5

1.4. PROPOSED RA TES ............................................................................... 8

1.4.1. Proposed Water Rates ............................................................................................... 8

1.4.2. Proposed wastewater Rates ..................................................................................... 9

2. STUDY BACKGROUND .......................................................... 11

2.1. SYSTEM OVERVIEW ........................................................................... 11

2.2. LEGAL FRAMEWORK ......................................................................... 11

2.3. RATE-SETTING METHODOLOGY ....................................................... 12

3. KEY ASSUMPTIONS ............................................................... 14

4. WATER RA TE STUDY ............................................................. 16

4.1. WATER UTILITY FINANCIAL PLAN .................................................... 16

4.1.1. Existing Rate Structure and Rates .......................................................................... 16

4.1.2. Account and Usage Projections ............................................................................. 17

4.1.3. Revenues .................................................................................................................. 18

4.1.4. O&M Expenses ......................................................................................................... 19

4.1.5. Capital Improvement Plan .................................................................... ; .................. 20

4.1.6. Recommended Reserve Policies ............................................................................ 22

4.1.7. Status Quo Financial Plan ....................................................................................... 22

4.1.8. Proposed Financial Plan .......................................................................................... 24

4.2. COST OF SERVICE ANALYSIS ........................................................... 29 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT i 23 of 95
November 18, 2025, Item #12

4.2.1. Cost of Service Methodology .................................................................................. 29

4.2.2. Revenue Requirement. ............................................................................................. 29

4.2.3. Functionalization and Allocation of Expenses ...................................................... 30

4.2.4. Peaking Factors ........................................................................................................ 31

4.2.5. Allocation of Costs ................................................................................................... 32

4.2.6. Units of Service ........................................................................................................ 37

4.2.7. Allocation of Revenue Requirements to Cost Causation Components ............... 38

4.3. WATER RATE DEVELOPMENT ........................................................... 41

4.3.1. Derivation of Proposed Bi-monthly Fixed Charge ................................................. 41

4.3.2. Derivation of Proposed Commodity Rates ............................................................. 41

4.3.3. Proposed Water Rate Schedule .............................................................................. 43

4.4. BILL IMPACTS ..................................................................................... 43

4.5. LARGEST TEN PERCENT OF USERS ................................................ 45

5. WASTEWATER RATE STUDY ................................................ 46

5.1. WASTEWATER UTILITY FINANCIAL PLAN ....................................... 46

5.1.1. Existing Rate Structure and Rates .......................................................................... 46

5.1.2. Account and Usage Projections ............................................................................. 4 7

5.1.3. Revenues .................................................................................................................. 47

5.1.4. O&M Expenses ......................................................................................................... 48

5.1.5. Capital Improvement Plan ....................................................................................... 49

5.1.6. Recommended Reserve Policies ............................................................................ 49

5.1.7. Status Quo Financial Plan ....................................................................................... 50

5.1.8. Proposed Financial Plan .......................................................................................... 52

5.2. WASTEWATER COST OF SERVICE ANALYSIS ................................ 56

5.2.1. Cost of Service (COS) Methodology ....................................................................... 56

5.2.2. Revenue Requirement. ............................................................................................. 56

5.2.3. Mass Balance ............................................................................................................ 57 .

5.2.4. Functionalization and Allocation of Expenses ...................................................... 58

5.2.5. Allocation of Costs ................................................................................................... 59

5.2.6. Units of Service ........................................................................................................ 61

5.2.7. Allocation of Revenue Requirements to Cost Causation Components ............... 61

CITY OF POWAY
24 of95
WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT ii November 18, 2025, Item #12

5.2.8. Distribution of Cost Causation Components ......................................................... 63

5.3. WASTEWATER RATE DEVELOPMENT .............................................. 64

5.3.1. Derivation of Proposed Bi-monthly Fixed Charge ................................................. 64

5.3.2. Derivation of Proposed Commodity Rates ............................................................. 65

5.3.3. Proposed Wastewater Rate Schedule .................................................................... 66

5.4. BILL IMPACTS ..................................................................................... 67

CITY OF POWAY
25 of95
WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT iii November 18, 2025, Item #12
List
of
Tables
Table
1-1:

FY
2026-2030
Proposed
Water
Bimonthly
Meter
Service
Charges
.............
....
.........
...................
9 Table
1-2: FY
2026
-2030
Proposed
Water
and
Recycled
Water
Commodity
Rates
($
/ccf)
........................
9 Table
1-3: FY
2026
-2030
Proposed
Wastewater
Charges
..........................
...................
....
..........
.................
10 Table
3-1: Water
Key
Inflationary
Fa
ctor
s ...............................
.....
...............
.....
...............
......
..............
..........
14 Table
3-2
: Water
Key
Revenue
Assumptions
................................................................................................ 15 Table
3-3: Wastewater
Key
Inflationary
Factors
..............
..............................................
.......
........................
15 Table 3-4
: Wastewater
Key
Rev
enue
Assumptions
................................................................ ......................
15 Table
4-1: Existing
Bi-monthly
Water
Meter
Service
Charges
....................................
................................
16 Table
4-2
: Ex
isting
Bi-monthly
Water
Commodity
Rates
($/ccf
) .......................
....
.....
..............
...................
16 Table
4-3: Potable
and
Recycled
Water
Meters
....
....
..........
.......
........................................
...........................
17 Table
4-4
: Potable
and
Recycled
Water
Use
by
Class
(c
cf)
....................................
.....................................
18 Tabl
e
4-5
: Projected
Operating
Revenues
Under
Exist
ing
Water
Rates
...................
.................................
18 Table
4-6: Water
Proje
cted
Other
Rev
enue
s ................................................................................................. 19 Tabl
e
4-7: Wat
er Revenue
Summary
.............................................................................................................. 19 Table
4-8: Water
Operating
Expenditures
Summary
..........................................
.......
...................................
20 Table
4-9: Water
Capital
Improvement
Plan
.................................................................................................. 21 Table
4-10
: Water
Proposed
Reserve
Targets
.............
......
.....................................
.....
...................................
22 Table
4-11
: Water
Financ
ial
Plan
under
Current
Rates
.............................................
...................................
23 Table
4-12
: Water
Projected
Fund
Balan
ces
Under
Current
Rates
................
............
.................................
24 Table
4-13
: Water
Proposed
Revenue
Adjustments
................................................................... ..................
24 Table
4-14
: Water
Proposed
Financial
Plan
.........
..................
..................................
.....
................
................
25 Table
4-15
: Water
Projected
Fund
Balances
Under
Proposed
Rates
............
.........................
......
..............
26 Table
4-16
: Water
Revenue
Requirement
................
................................................................... ...................
30 Table
4-17
: System
Peaking
Fa
ctors
.............
......................
..................
............
...............
..............................
32 Table
4-18
: Functional
ized
O&M
Cost
Distributions
to
Cost
Causat
ion
Factors
......................................
33 Table
4-19
: Water
O&M
Cost
Allocations
...................................................................... .............
......
..............
34 Table
4-20
: Fun
ctionalized
Capital
Cost
Distr
ibutions
to
Cost
Causat
ion
Factors
.......
...........................
35 Table
4-21
: Water
Capital
Cost
Allocations
.............................
...................................................................... 36 Table
4-22
: Water
Cost
Allocat
ion
Distribution
Summary
..............................
......................
.........
......
........
36 Table
4-23
: Potable
Water
Equ
ivalent
Meters
1 .........................
.......................................
.............................
. 37
Table
4-24
: Recycled
Water
Equivalent
Meters
.................................................................................... .........
38 Table
4-25
: Derivation
of
Cost
Causation
Component
Units
of
Service
......................
..............................
38 Table
4-26
: Water
Unit
Cost
Cal
culation
........................................................................................................ 40 Table
4-27
: Derivation
of
the
Bi-monthly
Fixed
Charges
......................................
...........
....................
........
41 Table
4-28
: Recy
cled
Water
Commodity
Rate
Calculation
.....
.........................
............................................
42 Table
4-29
Calculation
of
PSAWR
Rates
...........
.................................................................. ...........................
42 Table
4-30
: Derivation
of
the
Commodity
Rates
($
/ccf
) ..................................
.........................
...........
.........
43 Table
4-31
: CY
2026-2030
Proposed
Water
Bi-monthly
Meter
Servi
ce
Charges
....................................
... 43
Table
4-32
: CY
2026-2030
Proposed
Water
Commodity
Rates
................................................................... 43 Table
5-1: Existing
Bi-monthly
Wastewater
Serv
ice
Charges
.............................................
.........
, ..............
46 Table
5-2: Existing
Bi
-monthly
Commodity
Rates
($/ccf
wastewater
) .....................................
.......
...........
46 Table
5-3
: Wastewater
Accounts
.....
....................................................... .............................
...................
........
47 Table
5-4
: Billed
Wastewater
Flow
by
Class
(cc
f) .........................................
.....................
...........................
47 Table
5-5
: Projected
Operating
Revenues
Under
Existing
Wastewater
Rates
.......
............................
.......
48 Table
5-6: Projected
Other
Wastewater
Revenues
..........................................
..........
...................................
48 Table
5-7
: Wastewater
Revenue
Summary
at
Current
Rates
...................................
.......
......
......................
48 Table
5-8: Wastewater
Operating
Expenditures
Summary
..................
............................................
............
49 CITY
OF
POWAY
WATER
AND

WASTEWATER
COST
OF

SERVICE
AND
RATE
STUDY
REPORT
Iv
26 of95
November 18, 2025, Item #12
Table
5-9: Wastewater
Capital
Improvement
Plan
.......................
..................
................
.............
.....
...........
.. 49
Table
5-10
: Wastewater
Proposed
Reserve
Targets
........
.......
......
......
..........................................
............
....
50 Table
5-11
: Wastewater
Financ
ial
Plan
under
Current
Rates
....
........
........
............
.............
............
......
.......
51 Table
5-12
: Wastewater
Proje
cted
Fund
Balances
Under
Current
Rates
......
......
......
................
............
.... 52
Table
5-
13 : Wastewater
Proposed
Revenue
Adjustments
......
........................
........
.......
....
.........
..............
... 52
Table
5-14
: Wastewater
Proposed
Finan
ci
al
Plan
....
...........
......
..............
....
..........
.........
...............
...............
53 Table 5-15
: Wastewater
Projected
Fund
Balances Under
Proposed
Rates
...............................
................
54 Table
5-16
: Wastewater
Revenue
Requ
irement
..............
..........
......
.................
.....................
....
.......
.............
57 Table
5-17: Mas
s
Balance
Analys
is .....
..........................
.........
......
....
..........................................
....................
58 Table
5-18
: Wastewater
O&M
Cost
Allo
cations
.......
.....................
.....
........
....
.......................
...........
.............
59 Table
5-19
: Wastewater
Capital
Cost
Allocat
ions
.....................................
.......
...........
............
.......
.........
......
60 Table
5-20
: Wastewater
Cost
Allo
cat
ion
Distr
ibut
ion
Summary
...
................................
...........
.............
...... 60
Table
5-21
: Wastewater
Customer
Class
Data
.......
......
.........
........
......
............
.....
........................
.............
....
61 Table
5-22
: Wastewater
Un
it Cost
Cal
culat
ion
..........
......
........
...
.....
..........
...................
..................
...............
62 Table
5-23:

Allocation
of
Costs
to
Customer
Clas
ses
.....
.......
.......
........
............................
.............
.............
63 TABLE
5-24
: Der
ivation
of the
Wastewater
Bi
-monthly
Fi
xed
Charge
.............
..........
..............
......
............
64 Table
5-25
: Der
ivat
ion
of
the
Wastewater
Commod
ity
Rates
($/ccf
) ....
...
...................................
................
65 Table
5-26
: CY
2026
-2030
Proposed
Bi-monthly
Wastewater
Charges
......
.................
........
.....
......
............
66 List
of
Figures
Fi
gur
e
1-1: Water
Rev
enue
Adjustments
and
Debt
Co
verage
.....
........
............
......
.........
..........
.....
...........
.....
3 Figur
e
1-2
: Water
Operating
Financial
Plan
at
Proposed
Rates
...
....
....................................
....
..........
......
....
4 Figure
1-3: Proposed
Water
Cap
ital
Improvement
Plan
and
Fund
ing
Sources
.......................
.......
............
4 Figure
1-4
: Water
Projected
End
ing
Balances
at
Proposed
Rates
......
..............
...........................
................
5 Figure
1-5: Wastewater
Revenue
Adju
stments
.....
........
........
...........
............................................................. .. 6
Fi
gur
e
1-6: Wastewater
Operating
Finan
ci
al
Plan
................
.................
...................................
.....
......
...........
6 Fi
gure
1-7: Wastewater
Capital
Replacement
Plan
and
Fund
ing
Sour
ces
.................
.......
.........
.........
........
7 Figure
1-8: Wastewater
Projected
End
ing
Balances
.......................
.........................
............
..........................
8 Figure
4-1: Water
Operating
Financ
ial
Plan
at
Proposed
Rates
...
.............
..............
...........
..........
..............
27 Fi
gure
4-2: Proposed
Water
Cap
ital
Improvement
Plan
and
Funding
Sour
ce
..........
.................
.............
.. 27
Figure
4-3
: Water
Proje
cted
Ending
Balances
at
Proposed
Rate
s ....
........................................................ . 28
Fi
gure
4-4
: Single
-Fam
ily
Residential
Water
Bill
Impact
Analysis
.....
..............
...........
..........
.......
.........
.....
. 44
Figure
4-5: Non
-Residential
Water
Bill
Impa
ct Analys
is ..........
.........
...
...................
...............
...........
.........
.. 44
Figure
5-1: Wastewater
Operating
Financ
ial
Plan
at
Proposed
Rat
es ........
...........
.....
.......
........................
54 Fi
gur
e
5-2
: Proposed
Wa
stewater
Cap
ital
Improvement
Plan
and
Fund
ing
Sour
ce .
........
.....
.............
.....
55 Figure
5-3: Projected
End
ing
Wastewater
Reserves
at
Proje
cted
Rate
s .
..............................
....................
55 Figure
5-4
: Single
-Family
Resident
ial
Wastewater
Bill
Impa
ct Analysis
.....................
.......
.....................
.. 67
Figure
5-5: Non
-Res
idential
Wastewater
Bill
Impa
ct Analysis
..........
..........
..................
.........
........
.............
67 CITY
OF
POWAY
WATER
AND

WASTEWATER
COST
OF

SERVICE
AN
D
RATE
STUDY
REPORT
v
27 of
95 November 18, 2025, Item #12
CITY
OF
POWAY
28 of
95 This
page
intentionally
left
blank
to
facilitate
two-sided
printing.

W
ATER
AN
D

WASTEWATER
COST
OF

SERVICE
AND
RATE
ST
UD
Y
REPORT
vi
November 18, 2025, Item #12

1. Executive
Summary

1.1. System
Overview
The
City
of
Poway
provides potable
water,
recycled
water,
and
wastewater
service
to
a population
of
over
49,000
.

The
majority
of
water
customers
also
receive
wastewater
service.

The
City
currently
imports
all
its
potable
water
as
raw
water
from the
San
Diego
County
Water
Authority
(SDCW
A)
and
treats
the
water
in
its
own
treatment
plant.

The
City
also
provides
wastewater
collection
service
and
transports
the
wastewater
to
the
San
Diego
Metropolitan
Wastewater
System
(METRO
Joint
Powers
Authority)
for
treatment
and
disposal.

Recycled
water
is
purchased
from
the
City
of
San
Diego
and
provided
to
approximately
212
customers
primarily
located
in
the
South
Poway
Business
Park.

The
City
currently
charges
potable
water
customers
a fixed
bi-monthly
meter
charge
and
a volumetric
rate
based
on
customer
class.

Single-family
residential
customers
have
a three
-tier
rate
structure
based
on
units
of
consumption
. All
other
customers
pay
a uniform
volumetric
rate.

Recycled
water
customers
pay
the
same
fixed
bi­
monthly
meter
charge
with
their
own
uniform
volumetric
rate.

Single
family
wastewater
customers
pay
a uniform
bi
-monthly
fixed
service
charge
and
a uniform
volumetric
charge
based
on
the
customer's
winter water
usage.

All
other
customers
pay
the
same
fixed
uniform
bi-monthly
service
charge
and
a uniform
flow
charge
by
customer
class
based
on
estimated
wastewater
flows.

The
City
engaged
Raftelis
in
2024
to
conduct
a comprehensive
cost-of-service
water
and
wastewater
rate
study
to
establish
proposed
water
and
wastewater
rates
for
fiscal
years
(FY)
2026
to
FY
2030
. The
primary
project
objectives
of
the study
include
:

I.

Develop
five-year
financial
plans
for
the
water,
recycled
water,
and
wastewater
enterprises
through
FY
2030
that
generate
sufficient
revenues
to
fund
the
City's
operating
costs,
debt
obligations,
prudent
reserves,
and
necessary
capital
expenditures

2. Review
and
revise
as
necessary
the
current
water
and
wastewater rate
structures

3. Perform
a
cost-of-service
analysis
to
equitably
allocate
costs
across
customer
classes
in
compliance
with
Proposition
218

4. Propose
equitable
water,
recycled
water,
and
wastewater
rates
for
FY
2026
to
FY
2030
A
FY
is
defined
as
beginning
on
July
1 and
ending
on
June
30;
for
example,
FY
2026
begins
July
1,
2025,
and
ends
June
30,
2026.

1.2. Methodology

1.2.1.WATER

UTILITY
The
water
rates
presented
in
this
report
were
developed
using
cost
-of
-service
principles
set
forth
by
the
American
Water
Works
Association
Ml
Manual
titled
Principle
s of
Water
Rates,
Fees
and
Charges
(A
WW
A
Ml
Manual)
. Cost­
of-service
principles
endeavor
to
distribute
costs
to
customer
classes
in
proportion
to
the
cost
each
class
imposes
on
the
water
system.

This
methodology
is
described
in
detail
in
Sections

4.2 and

5.2. The
Base-Extra
Capacity
Method
of
the
A WW
A M 1
Manual
was
used
to
distribute
costs
to
customer
classes
and
tiers
. This
method
separates
costs
into
five
main
components
: (1)
supply
costs,
(2)
base
costs,
(3)
extra
capacity
costs,
(4)
customer
costs
, and
(5)
fire
protection
costs.

Supply
costs
are incurred
to
purchase
raw
water
from
the
San
Diego
County
Water
Authority
(SDCW
A).

Base
costs
are
costs
associated
with
meeting
average
daily
demand
needs
and
include
operations
and
maintenance
costs
and
capital
costs
designed
to
meet
average
load
conditions.

Extra
capacity
costs
are
costs
(both
operating
and
capital
costs)
associated
with
meeting
peak
demands.

Those
extra
capacity
costs
are
inherently
borne
1 C
IT
Y
OF
POWAY
29 of95
November 18, 2025, Item #12
to meet the larger infrastructure and water capacity requirements of those peak demands (including larger diameter pipeline sizing, reservoir sizing, pump station capacity, and treatment plant capacity, among others). Customer costs are associated with serving customers, such as meter reading, billing, and customer service. Fire protection costs are related solely to the fire protection function of a water system, such as fire hydrants, private fire connections, and related mains and valves.

1.2.2. WASTEWATER UTILITY
The wastewater rates presented in this report were developed using cost-of-service principles set forth in the Water Environment Federation (WEF) Manual of Practice No. 27, Financing and Charges for Wastewater Systems, 2025. To calculate fair and equitable rates so that users pay in proportion to the cost of providing service, Raftelis allocated the total revenue requirements to wastewater flow, chemical oxygen demand (COD), and total suspended solids (TSS) consistent with the previously identified WEF /industry guidelines. Since wastewater flow or volumes are not directly measured for each customer, wastewater flows and loadings (flow, COD, and TSS) are estimated for each customer class through a plant balance analysis, which is used to estimate and validate the wastewater loadings (flow, COD, and TSS) generated by each customer class.

1.3. Proposed Financial Plans

1.3.1.WATER UTILITY FINANCIAL PLAN
To determine the revenue requirements needed to fund the City's ongoing expenses, Raftelis projected the O&M costs, capital improvement costs, and reserve requirements for the study period between FY 2026 to FY 2030.

O&M expenses include salaries and benefits, materials, services, supplies, utilities, water purchases, and general administrative costs. Water and power costs are held constant, and the City will pass through increases in water purchase and power costs annually (power costs by the increase in relevant Consumer Price Index figure). The City plans to spend approximately $82M on capital expenditures from FY 2026 to FY 2030.

Reserve targets are provided for prudent fiscal management and described in detail in Sections 4.1.6 and 5 .1.6 for water and wastewater, respectively. With bi-monthly billing, the minimum operating reserve is 90 days of operating expenses and the target is 120 days of operating expenses to provide working capital and to mitigate unexpected changes in operating costs. The capital reserve target is set to the five-year average capital expense to provide funds for capital expenses and unexpected increases or repairs/replacements.

Figure 1-1 through Figure 1-4 display the Water Utility Financial Plan in graphical format. Figure 1-1 shows the proposed revenue adjustments ( dark blue bars) of 9. 9% year one and 4. 0% for years two to five on the left axis. The rate models are based on each revenue adjustment going into effect in January of the corresponding fiscal year, however, year one adjustments will occur later in January 2026 following adoption. Although the graph shows anticipated revenue adjustments for the entire study period, the City will review and confirm the necessary revenue adjustments each year. The right axis of the graph shows the calculated and required coverage ratios for the City.

For the purpose of this study, the Poway Treated Water Facilities & Redundant Pipeline project is primarily funded through issuance of debt in late FY 2026, with funds available in FY 2027. Costs of this project are unknown at this time but included at the highest estimated cost for planning purposes.

CITY OF POWAY
30 of95
WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 2 November 18, 2025, Item #12
12 %
10 %
'o
6%
<t QJ ::, C !?;;
4%
QJ c:::
2% 0%
Figure
1-1
: Water
Revenue
Adjustments
and
Debt
Coverage
Rev
enue
Adju
stment
s
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
-
Revenue
Adjustm
ent
s
-
Debt
Cove
rage
-
Requ
ired
Coverage
•
Coverage
Alert 270
%
220
%
QJ
170
%
& QJ > 0 u
120
%
~ 0
7r.J% 20
%
Figure
1-2
graphically
illustrates
the
water
financial
plan,
comparing
existing
and
proposed
revenues
(orange
and
purple
lines,
respectively)
with
projected
expenses
(bars)
. The
expenses
are
represente
,d by
stacked
bars
to
indicate
each
expense
type's
share
of
total
expenses.

The
net
cash
flow
is
shown
in
green
.
3 CIT
Y
OF
POW
AY
31 of
95 November 18, 2025, Item #12
Figure
1-2: Water
Operating
Financial
Plan
at
Proposed
Rates
Operating
Financial
Plan
V,
$60
C .Q 2
$50 $40 $30 $20 $10 $0
-$10
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
-
Op
erati
ng
Expenses
-
Wate
r Purcha
ses
-
Rate
Funded
Capital
-
Debt
Service
-
Net
Cashflo
w
-
current
Reve
nu
e
-
Propo
sed
Revenue
Figure
1-3
shows
that
the
total
amount
of
the
water
capital
projects
are
funded
by
a combination
ofrates/reserves
(green
bars),
debt
proceeds
(blue
bars),
and
connection
fees
(orange
bars).

The
total
estimated
water
CIP for
the
study
period
of
FY
2026
to
FY
2030
is
$82M.

A
significant
amount
of
connection
fee
revenue
is
being
utilized
in
FY
2025
($4.SSM),
offsetting
a significant
amount
of
funding
that
otherwise
would
be
required
from
rate
revenue
or
more
expensive
debt
proceeds.

Figure
1-3: Proposed
Water
Capital
Improvement
Plan
and
Funding
Sources
V,
$25
.0
C .Q 2
$20
.0
$15.0 $10.0 $5
.0
$0
.0
CITY
OF
POWAY
32 of
95 $17
.5
FY
2026
Ca
pital
Funding
Sources
$23.2
$20
.2
$14.1
$6
.9
FY
2027
FY
2028
FY
2029
FY
2030
■
Debt
Funded
■
Rates/Reserve
s
Funded
■
Connection
Fee
Funded
WATER
AND

WASTEWATER
COST
OF

SERVICE
AND
RA
TE
STUDY
REPORT
4 November 18, 2025, Item #12
Figure
1-4
shows
the
City
's water
operating
and
capital
reserve
ending
balances
for
each
fiscal
year
after
operating
and
capital
costs
are
funded
. As
shown,
the
City
will
maintain
its
reserves
in
FY
2026
and
FY
2030
to
cover
capital
costs
and
will
meet
its
minimum
reserve
level
in
all
years
(indicated
by
the
orange
line)
.
v,
$20
C ~
$18
2 $16 $14 $12 $10 $8 $6 $4 $2 $0
Figure
1-4
: Water
Projected
Ending
Balances
at
Proposed
Rates
Operat
ing
&
Capit
al Re
se
rve
s
FY
2026
FY
2027
FY
202
8 FY
2029
-
To
ta
l Rese
rves
Mi
nimu
m
Reserve
-
Ta
rget
Rese
rve

1.3.2 . WASTEWATER

UTILITY

FINANCIAL
PLAN
FY
2030
To
determine
the
revenue
requirements
needed
to
fund
the
City
's ongoing
expenses,
Raftelis
projected
the
O&M
costs,
capital
improvement
costs,
and
reserve
requirements
for
the
study
period
between
FY
2026
to
FY
2030.

O&M
expenses
include
salaries
and
benefits,
materials
, services,
supplies
, utilities,
wastewater
treatment,
and
general
administrative
costs
. Treatment
costs
from
the
city
of
San Diego
are
held
constant,
and
the
City
will
pass
through
increases
in
treatment
costs
annually
. From
FY
2026
to
FY
2030,
the
city
plans
to
spend
approximately
$14M
on
capital
expenditures
.

Figure
1-5
through
Figure
1-8
display
the
Wastewater
Utility
Financial
Plan
in
graphical
format
. Figure
1-5
shows
the
proposed
revenue
adjustments
(dark
blue
bars)
of

0.0%
in
the
first
two
years
and

3.0%
annually
for
years
three
to
five
on
the
left
axis
. The
financial
plan
proposes
no
revenue
adjustments
for
wastewater
for
the
first
two
years
of
the study
period
as
reserves
are
sufficient
to
meet
expenses
. The
rate
models
are
based
on
each
revenue
adjustment
going
into
effect
in
January
of
the
corresponding
fiscal
year
. Although
the
graph
shows
anticipated
revenue
adjustments for
the
entire
study
period
, the
City
will
review
and
confirm
the
necessary
revenue
adjustments
each
year
. Over
the
five-year
planning
period,
the
City
does
not
anticipate
issuing
any
debt
for
the
wastewater
utility.
5 CITY
OF
POWAY
33 of
95 November 18, 2025, Item #12
Figure
1-5
: Wastewater
Revenue
Adjustments
Revenue
Adjustments

3.5 %

3.0%
V,

2.5 %
E C1) E '@

2.0 %
~ ci:: C1)

1.5 %
::, C: C1) > C1)

1.0 %
er:

0.5 %

0.0%
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
■
Revenue
Adjustments
Figure
1-6
graphically
illustrates
the
wastewater
financial
plan,
comparing
existing
and
proposed
revenues
(orange
and
purple
lines,
respectively)
with
projected
expenses
(bars).

The
expenses
are
represented
by
stacked
bars
to
indicate
each
expense
type's
share
of
total
expenses.

The
net
cash
flow
is
shown
in
green.

Reserves
are
used
to
fund
capital
expenditures.

Figure
1-6
: Wastewater
Operating
Financial
Plan
Operating
Financial
Plan
V,
$20
C: ~ ~
$15 $10 $5 $0 -$5
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
-
Op
erat
in
g
Expens
es
-
Rate
Funded
Cap
ital
-
Net
Cashflow
-
Curr
en
t R
even
ue
-
Propo
sed
Revenue
CITY
OF
POWAY
WATER
AND

WASTEWA
TER
COST
OF

SERVICE
AND
RATE
STUDY
REPORT
6 34
of
95 November 18, 2025, Item #12
Figure
1-7 shows
the
total
cost
of
the
wastewater
capital
projects
and
their
funding sources.

The
total
estimated
water
CIP
for
the
study
period
of
FY
2026
to
FY
2030
is
$14M.

As
shown
by
the
stacked
bars,
the
City
plans
to
fund
its
capital
projects
through
a combination
of
rates/reserves
(green
bars)
and
connection
fees
(orange
bars).

As
shown,
a significant
amount
of
connection
fee
revenue
is
being
utilized
in
FYs
2025
and
2026,
offsetting
a
significant
amount
of
funding
that
otherwise
would
be
required
from
rate
revenue
or
more
expensive
debt
proceeds
.

Figure
1-7
: Wastewater
Capital
Replacement
Plan
and
Funding
Sources
Capital
Funding
Sources
\I)
$4.0
C 0
$3.4
§
$3.5
2 $3.1
$3.0
S2
.7
S2.4
S2.4
$2.5 $2.0 $1.5 $1.0 $0.5 $0.0
-
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
■
Rates/Reserves
Funded
■
Connection
Fee
Fund
ed
7 CITY
OF
POWAY
35 of95
November 18, 2025, Item #12
Figure 1-8 shows the City's wastewater operating and capital reserve ending balances for each fiscal year after operating and capital costs are funded. As shown, the City will draw down its reserves through the study period to cover capital costs, but will still exceed its reserve targets as indicated by the solid purple line. The targets are defined the same as for the water utility.
"'$18
C
:§ $16
~
$14
$12
$10
$8
$6
$4
$2
$0
FY 2026
Figure 1-8: Wastewater Projected Ending Balances
Operating & Capital Reserves
FY 2027 FY 2028 FY 2029
-Total Reserves -Minimum Reserve -Target Reserve

1.4. Proposed Rates

1.4.1.PROPOSED WATER RATES
FY 2030
The proposed cost of service potable and non-potable rates effective, following adoption in January 2026, are shown below. The rates for subsequent years are increased by the revenue adjustments in Figure 1-1 to arrive at the proposed 5-year rate schedules shown in Table 1-1 and Table 1-2.The rates shown do not include potential increases in water purchase costs from the San Diego County Water Authority, or increases in wholesale recycled water purchase costs from the City of San Diego which will, per Government Code 53 756, be passed through annually in January 2027 and beyond.

CITY OF POWAY
36 of 95
WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 8 November 18, 2025, Item #12
Table 1-1: FY 2026-2030 Proposed Water Bimonthly Meter Service Charges

A B C D E F G
Line Meter Current January January January January January Size Charge 2026 2027 2028 2029 2030
1 5/8" $72.69 $81.54 $84.81 $88.21 $91.74 $95.41
2 3/4" $98.27 $113.03 $117.56 $122.27 $127.17 $132.26
3 1" $149.41 $176.03 $183.08 $190.41 $198.03 $205.96
4 11/2" $277.27 $333.52 $346.87 $360.75 $375.18 $390.19 5 2" $430.67 $522.50 $543.40 $565.14 $587.75 $611.26
6 3" $916.53 $1,120.96 $1,165.80 $1,212.44 $1,260.94 $1,311.38 7 4" $1,632.50 $2,002.89 $2,083.01 $2,166.34 $2,253.00 $2,343.12 8 6" $3,345.71 $4,113.23 $4,277.76 $4,448.88 $4,626.84 $4,811.92 9 8" $6,158.49 $7,577.96 $7,881.08 $8,196.33 $8,524.19 $8,865.16 Table 1-2: FY 2026-2030 Proposed Water and Recycled Water Commodity Rates ($/ccf)

A B C D E F
Line Variable Rate
January January January January January
2026 2027 2028 2029 2030
1 Uniform $8.21 $8.54 $8.89 $9.25 $9.62
2 Recycled $6.96 $7.24 $7.53 $7.84 $8.16
3 PSAWR Rebate -$1.94 -$1.97 -$1.97 -$1.97 -$1.97

1.4.2. PROPOSED WASTEWATER RATES
The proposed cost of service wastewater rates effective, following adoption in January 2026, are shown below.

Rates for subsequent years are increased by the revenue adjustments in Figure 1-5 to arrive at the 5-year rate schedules shown in Table 1-3. While there is no rate adjustment for the first year of proposed rates, the rates still change based on the resulting cost-of-service analysis. The rates shown do not include future increases in wastewater treatment costs which will be passed through following adoption in January 2026 and beyond. 9 CITY OF POWAY
37 of95
November 18, 2025, Item #12
Table
1-3: FY
2026
-2030
Proposed
Wastewater
Charges
Customer
Class
Bi-Monthly
Fixed
Charge
All
Customer
Classes
Commodity
Rate
per
cd
of
Wastewater
Residential Single
Family
Residence
Multi-Family
&
Mobile
home
Non-Residential
General
Commercial
Medium-Low Medium Medium-High High Light
Industry
Industrial
Special
User
Government
&
Membership
Organizations
Churches Elementary
School
Secondary
&
High
School
C
ITY
OF
POWAY
38 of95
Current
January
January
January
January January
Charge
2026 2027 2028
2029
2030
$33.13
$33.36
$33.36 $34.37 $35.41 $36.48
$5.46
$5
.30
$5
.30
$5.46
$5.63
$5.80
$6
.85
$6.97 $6.97
$7.18 $7.40
$7.63
$5
.91
$5
.96
$5
.96
$6
.14
$6
.33
$6.52
$6.61
$6.76
$6.76
$6
.97
$7.18
$7.40
$7.42 $7.21
$7.21 $7.43
$7
.66
$7.89
$7.58
$7
.90
$7.90
$8
.14
$8.39 $8.65
$10.44
$10.71
$10.71
$11
.04
$11.38
$11
.73
$6.42
$6.49
$6.49
$6
.69
$6.90
$7
.11
$6
.48
$6.60
$6.60
$6
.80
$7.01 $7.23
$4
.85
$5.94
$5.94
$6
.12
$6
.31
$6.50
$5
.91
$6
.06
$6
.06
$6
.25
$6
.44
$6.64
$5
.98
$6
.12
$6
.12
$6
.31
$6.50
$6
.70
$5
.93
$6.07
$6.07
$6
.26
$6.45
$6.65
WA
TER
AN
D
WA
STEW
A
TER
COST
O
F
SERV
ICE
AND
RA
TE S
TUD
Y R
EPO
RT
10 November 18, 2025, Item #12

2. Study
Background

2.1. System
Overview
The
City
of
Poway
provides
potable
water,
recycled
water,
and
wastewater
service
to
a population
of
over
50,900
.

The
majority
of
water
customers
also
receive
wastewater
service.

Recycled
water
is
provided
to
approximately
212
customers
primarily
located
in
the
South
Poway
Business
Park
. The
City
currently
imports
all
of
its
potable
water
as
raw
water
from
the
San
Diego
County
Water
Authority
(SDCWA)
and
treats
the
water
in
its
own
treatment
plant.

The
City
also
provides
wastewater
collection
service
and
transports
the
wastewater
to
the
San
Diego
Metropolitan
Wastewater
System
(METRO
Joint
Powers
Authority)
for
treatment
and
disposal.

Recycled
water
is
purchased
from
the
City
of
San
Diego.

The
City
currently
charges
potable
water
customers
a fixed
bi-monthly
meter
charge
and
a volumetric
rate
based
on
customer
class.

Single-family
residential
customers
pay
based
on
a three-tier
rate
structure
based
on
units
of
consumption.

All
other
customers
pay
a uniform
volumetric
rate.

Recycled
water
customers
pay
the
same
fixed
bi­
monthly
meter
charge and
a uniform
volumetric
rate.

Single
family
wastewater
customers
pay
a uniform
bi­
monthly
fixed
service
charge
and
a uniform
volumetric
charge
based
on
the
customer's
winter
water
usage.

All
other
customers
pay
a fixed
uniform
bi-monthly
service
charge
and
a uniform
flow
charge
by
customer
class
based
on
their
wastewater
flow.

The
City
engaged
Raftelis
in
2024
to
conduct
a comprehensive
cost-of-service
water
and
wastewater
rate
study
to
establish
proposed
water
and
wastewater
rates
for
fiscal
years
ending
(FY)
2026
to
FY
2030
. The
primary
project
objectives
of
the
study
include:

1. Develop five-year
financial
plans
for
the
water(including
recycled
water)
and
wastewater
enterprises
through
FY
2030
that
generate
sufficient
revenues
to
fund
the
City's
operating
costs,
debt
obligations,
prudent
reserves,
and
necessary
capital
expenditures

2. Review
and
revise
as
necessary
the
current
water
and
wastewater rate
structures

3. Perform
a
cost-of-service
analysis
to
equitably
allocate
costs
across
customer
classes
in
compliance
with
Proposition
218

4. Propose
equitable
water,
recycled
water,
and
wastewater
rates
for
FY
2026
through
FY
2030

2.2. Legal
Framework
California
Constitution
-Article
XIII
D,
Section
6 (Proposition
218)
Proposition
218,
reflected
in
the
California
Constitution
as
Article
XIII
D,
was
enacted
in
1996
to
ensure
that
rates
and
fees
are
reasonable
and
proportional
to
the
cost
of
providing
service.

The
principal
requirements,
as
they
relate
to
public
water
service,
are
as
follows:

1. A
property
-related
charge
(such
as
water
rates)
imposed
by
a public
agency
on
a parcel
shall
not
exceed
the
costs
required
to
provide
the
property
related
service.
11 CITY
OF
POWAY
39 of95
November 18, 2025, Item #12

2. Revenues
derived
by
the
charge
shall
not
be
used
for
any
purpose
other
than
that
for
which
the
charge
was
imposed
.

3. The
amount
of
the
charge
imposed
upon
any
parcel
shall
not
exceed
the
proportional
cost
of
service
attributable
to
the
parcel.

4. No
charge
may
be
imposed
for
a service
unless
that
service
is
actually
used
or
available
to
the
owner
of
property.

5. A
written
notice
of
the
proposed
charge
shall
be
mailed
to
the
record
owner
of
each
parcel
at
least
45 days
prior
to
the
public
hearing
, when
the
agency
considers
all
written
protests
against
the
charge
.

As
stated
in
the
American
Water
Works
Association's
(A
WW
A)
Principles
of
Water
Rates
, Fees
, and
Charges
:

Manual
of
Water
Supply
Practices
Ml
Sixth
Edition
(Ml
Manual),
"water
rates
and
charges
should
be
recovered
from
classes
of
customers
in
proportion
to
the
cost
of
serving
those
customers."
Raftelis
follows
industry
standard
rate
setting
methodologies
set
forth
by
the
A WW
A
Ml
Manual
and
the
California
regulations
to
ensure
this
study
meets
Proposition
218
requirements
and
establishes rates
that
do
not
exceed
the
proportionate
cost
of
providing
water
services
. Similarly,
Raftelis
follows
the
WEF
Manual
of
Practice
No.
27 to
conduct
cost-of-service
analysis
consistent
with
Proposition
218.

The
California
legislature
recently
enacted
legislation
that
allows
a public
agency
to
designate
a process
for
protesting
proposed
rate
increases
, and
set
a specified
timeline
for
bringing
rate
challenges
, provided
the
agency
has
given the
public
required
certain
notifications.

Those
notifications
can
be
included
in
the
Proposition
218
notice
of
a public
agency
, and
result
in
a limited
time
to
challenge
rates
in
court-as
explained
further
below.

Challenges
to
Rates 1.

Limitation
to
Rate
Challenges
Pursuant
to
California
Government
Cost
Section
53759
, there
is
now
a 120
day
statute
of
limitations
for
judicially
challenging
the
rates
adopted
herein
. All
challenges
to
the
City
's proposed
rates
will
need
to
be
brought
within
120
days
of
Council
adoption,
or
the
effective
date
of
the
new
rates
adopted
herein,
whichever
is
later
.

2. Exhaustion
of
Administrative
Remedies
Pursuant
to
California
Government
Code
Sections
53759
.1 and
53759.2,
a person
or
entity
will
be
prohibited
from
bringing
a judicial
action
or
proceeding
alleging
that
the
proposed
rates
do
not
comply
with
Proposition
218
unless
that
person
or
entity
has
submitted
a written
Objection
to
the
proposed
rates
in
response
to
the
notice.

This
is
known
as
an
Exhaustion
of
Administrative
Remedies
requirement
and
is
separate
from
the
Proposition
218
majority
Protest
process
. The
City's
designated
process
for
filing
written
objections
is
contained
in
the
City's
Proposition
218
Notice
. Written
objections
will
need
to
identify
any
alleged
areas
of
noncompliance,
and
follow
the
City's designated
process
specified
in
the
Proposition
218
Notice.

2.3. Rate-Setting
Methodology
This
rate
study
was
conducted
using
industry-standard
principles
outlined
by
the
A WW
A
Ml
Manual
and
the
WEF
Manual
of
Practice
No
. 27
. The
process
and
approach Raftelis
utilized
in
the
study
to
determine
water
and
wastewater
rates
is
informed
by
the
regulatory
requirements
in
California
(namely,
Proposition
218).

The
resulting
financial
plans,
cost-of-service
analysis,
and
rate
design
process
take
all
factors
into
consideration
and
follow
five
key
steps,
outlined
below
, to
determine
proposed
rates
that
fulfill
the
City's
objectives
, meet
industry
standards,
and
comply
with
relevant
regulations
.

C
ITY
OF
POWAY
WA
TER
A
ND
WAS
TE
WA
TER
COST
OF
SER
VI
C
E
AND
RA
TE S
TUD
Y
REPORT
12 40
of95
November 18, 2025, Item #12

1. Financial
Plan:

The
first
study
step
is
to
develop
multi-year
financial
plans
that
project
the
water
and
wastewater
utilities
revenues,
expenses,
capital
project
financing,
annual
debt
service,
and
reserve
funding
.

The
financial
plans
determine
the
revenue
adjustment,
allowing
the
utility
to
recover
adequate
revenues
to
fund
expenses
and
reserves.

2. Revenue
Requirement
Determination:

After
completing
the
financial
plan,
the
rate-making
process
begins
with
determining
the
revenue
requirement
for
the
test
year,
also
known
as
the
rate-setting
year.

The
test
year
for
this
study
is
FY
2026.

The
revenue
requirement
should
sufficiently
fund
the
utilities
operations
and
maintenance
(O&M)
costs,
annual
debt
service,
capital
improvement
plan
(CIP)
costs,
and
reserve
funding
as
projected
based
on
the
utilities
FY
2026
budget.

3. Cost-of-Service
Analysis:

The
annual
cost
of
providing
water
or
wastewater
service,
or
the
revenue
requirement,
is
then
distributed
to
customer
classes
commensurate
with
their
use
of
and
burden
on
the
water
or
wastewater
system.

A
cost-of-service
analysis
involves
the
following
steps:
a.

Functionalize
costs
-
the
different
components
of
the
revenue
requirement
are
categorized
into
functions
such
as
supply,
transmission
and
distribution
(T&D),
collection,
treatment,
customer
service
and
billing,
etc.
b.

Allocate
to
cost
causation
components
-
the
functionalized
costs
are
then
allocated
to
cost
causation
components
such
as
supply,
base
delivery,
peaking,
etc
. for
water
and
flow
and
strength
characterized
by
chemical
oxygen
demand
and
total
suspended
solids
for
wastewater
.
c.

Develop
unit
costs
-
unit
costs
for
each
cost
causation
component
are
determined
using
units
of
service,
such
as
total
usage,
peaking
units,
equivalent
meters,
number
of
customers,
total
wastewater
loadings,
etc.
for
each
component.
d.

Distribute cost
components
-
the
cost
components
are
allocated
to
each
customer
class
and
tier
using
the
unit
costs
in
proportion
to
their
demand
and
burden
on
the
system.

4. Rate
Design:

After
allocating the
revenue
requirement
to
each
customer
class,
the
rate
design
and
calculation
process
can
begin
. Rates
do
more
than
simply
recover
costs;
within
the
legal
framework
and
industry
standards,
properly
designed
rates
pass
on
the
cost
of
providing
service
equitably
to
customers
.

This
process
also
includes
a rate impact
analysis
and
sample
customer
bill
impacts
.

5. Administrative
Record
Preparation
and
Rate
Adoption:

The
final
step
in
a rate
study
is
to
develop
the
administrative
record
or
report
in
conjunction
with
the
rate
adoption
process.

The
administrative
record
documents
the study
results
and
presents
the
methodologies,
rationale, justifications,
and
calculations
used
to
determine
the
proposed
rates.

A
thorough
and
methodological
administrative
record
serves
at
least
two
important
functions:
(1)
maintaining
defensibility
of
the
rates,
with
a written
record
that
demonstrates why
the
City
Council
approved
the
proposed
rates
based
upon
the
applicable
cost
of
providing
the
service,
in
a
stringent
legal
environment;
(2)communicating the
rate
adoption
process,
and
cost
justifications
for
the
proposed
rates,
to
customers
and
stakeholders
.
13 CITY
OF
POW
AY
41 of
95 November 18, 2025, Item #12

3. Key Assumptions
The Study uses the City's FY 2026 budget as the base year and the model projects the City's revenue requirements through FY 2030; however, the proposed water and wastewater rates herein are for FY 2026 through FY 2030 and are fully adopted as to each of the next five years on the date the City Council approves the rates described herein.

The City will continue to periodically review rates and take a measured approach with any potential rate adjustments authorized by Government Code§ 53759. Certain cost escalation assumptions and inputs were incorporated into the Study to adequately model expected future costs of the City. These assumptions were based on discussions with and/ or direction from City staff and are presented in Table 3-1 through Table 3-4. Estimated costs of purchasing potable water in CY 2026 from the SDCW A are based on the published rates and recycled water purchase costs from the City of San Diego are based on rates provided by the City of San Diego for CY 2026 through 2029.

Inflation factors for specific expenses, such as salary, benefits, etc., are identified based on expected increases.

Potable and recycled water purchase costs are based on actual costs from the SDCW A and City of San Diego.

Potable costs are increasing by 11.5% from FY 2025 to FY 2026. Recycled water costs from the City of San Diego are increasing by 22.5% during the same time frame. Operating costs that do not fall into one of the specific categories are inflated by the General factor, which is the long-term average inflation factor. Capital costs are expected to be inflated at a slightly higher rate than general inflation given historical and projected inflation for this area.

Table 3-1: Water Key Inflationary Factors

A B C D E F
Line Inflationary Factors FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 1 General 3.0% 3.0% 3.0% 3.0% 3.0%
2 Salary 5.0% 3.0% 3.0% 3.0% 3.0%
3 Benefits 10.0% 10.0% 10.0% 10.0% 10.0%
4 Power 5.0% 0.0% 0.0% 0.0% 0.0%
5 SDCWA Water Purchases 0.0% 0.0% 0.0% 0.0% 0.0%
6 Recycled Water Purchases 0.0% 0.0% 0.0% 0.0% 0.0%
7 Capital 4.0% 4.0% 4.0% 4.0% 4.0%
Based on input from the City, small increases in account growth are expected for residential accounts in alignment with growth patterns. The demand factor for potable and recycled water represents the change in water consumption per account. The Study assumes that the consumption per account, demand factor, does not change, and the only change in use will result from any growth in accounts.

CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 14 42 of95
November 18, 2025, Item #12
Table
3-2
: Water
Key
Revenue
Assumptions
Revenue
Assumptions
FY
2026
FY
2027
FY
2028
FY
2029
FY2030
Account
Growth
Single
Family
Residential

0.5%

0.3%

0.3%

0.3%

0.3%
Multi-Family
Residential

0.1%

0.1%

0.1%

0.1%

0.1%
Landscape
Irrigation

0.0%

0.0%

0.0%

0.0%

0.0%
Non-Residential

0.0%

0.0%

0.0%

0.0%

0.0%
Recycled

0.0%

0.0%

0.0%

0.0%

0.0%
Demand
Factor
Potable
100
.0%
100
.0%
100.0%
100
.0%
100
.0%
Recycled
100
.0%
100
.0%
100.0%
100
.0%
100.0%
Revenue
Escalation
Factors
Non-Inflated

0.0%

0.0%

0.0%

0.0%

0.0%
Non-Rate
Revenues

0.0%

0.0%

0.0%

0.0%

0.0%
Interest
Income

2.0%

2.0%

2.0%

2.0%

2.0%
Table
3-3
: Wastewater
Key
Inflationary
Factors
A
B
C
D
E
F
Line
Inflationary
Factors
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
1 General

3.0%

3.0%

3.0%

3.0%

3.0%
2 Salary

5.0%

3.0%

3.0% 3.0%

3.0%
3 Benefits

10.0% 10.0% 10.0% 10.0% 10.0%
4 Power

5.0%

5.0%

5.0% 5.0%

5.0%
5 Capital

4.0%

4.0%

4.0%

4.0% 4.0%
Table
3-4
: Wastewater
Key
Revenue
Assumptions
Revenue
Assumptions
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
Account
Growth
Single
Family
Residential

0.3%

0.3%

0.3%

0.3% 0.3%
Multi-Family
Residential

0.1%

0.1%

0.1%

0.1%

0.1%
Non-Residential

0.0%

0.0%

0.0%

0.0% 0.0%
Revenue
Escalation
Factors
Non-Inflated

0.0%

0.0%

0.0%

0.0%

0.0%
Non-Rate
Revenues

0.0%

0.0%

0.0%

0.0%

0.0%
Interest
Income

2.0%

2.0%

2.0%

2.0% 2.0%
15 C
ITY
O
F P
OWA
Y
43 of95
November 18, 2025, Item #12

4. Water
Rate
Study

4.1. Water
Utility
Financial
Plan
This
section
details
the
development
of
the
five-year
financial
plan
for
the
City's
water
utility
. This
includes
the
determination
of
annual
revenues
required
from
potable
water
and
recycled
water
rates
based
on
annual
cash
flow
projections
. Assumptions
and
inputs
related
to
projected
revenues,
operating
expenses,
and
capital
expenditures
are
clearly
outlined
in
the
following
subsections
.

4.1 .1. EXISTING
RA
TE

STRUCTURE
AND
RA
TES
The
City
bills
every
two
months
(bi
-monthly),
resulting
in
six
total
bills
per
year
for
each
customer.

The
City's
current
rates
went
into
effect
on
January
1,
2025.

The
existing
rate
structure
for
potable
and
recycled
water
consists
of
a bi-monthly
fixed
service
charge
based
on
meter
size.

The
City's
existing
bi-monthly
service
charges
are
shown
below
in
Table
4-1
.

Table
4-1: Exist
ing
Bi-monthly
Water
Meter
Service
Charges
Meter
Size
FY
2025
5/8"
$72.69
3/4"
$98.27
1"
$149.41
11/2"
$277.27
2"
$430.67
3"
$916.53
4"
$1,632.50
6"
$3,345.71
8"
$6,158.49
Additionally,
customers
pay
a commodity
rate
by
customer
class
on
all
water
consumption
. These
rates
are
shown
in
Table
4-2.

Single-Family
Residential
customers
pay
a three-tiered
rate
based
on
consumption
at
each
tier
level
.

All
other
customers
pay
a uniform
rate
per
hundred
cubic
feet
(ccf)
of
water
consumed
. Please
note
that
the
Potable
and
Recycled
rates
for
City
use
are
for
fiscal
year
(FY)
2025
.

CITY
O
F
POWAY
44 of95
Table
4-2: Ex
ist
ing
Bi-monthly
Water
Commodity
Rates
($/ccf)
Customer
Class
Tier
Width
(ccf)
FY
2025
Single
Family
Residential
Tier
1 0-20
$6
.72
Tier
2 21-56
$7
.78
Tier
3 57+
$10
.69
Multi-Family
Residential
Uniform
$6.88
Landscape
Irrigation
Uniform
$9
.41
Non-Residential
Uniform
$7
.29
City
Potable
Usage
Uniform
$7
.29
Recycled
Uniform
$5
.68
WATER
AND

WASTEWATER
COST
OF
SERV
ICE
AND
RA
TE
ST
UD
Y
RE
PORT
16 November 18, 2025, Item #12

4.1.2.ACCOUNT AND USAGE PROJECTIONS
Table 4-3 shows the estimated number of water accounts by meter size for FY 2025 through FY 2030. The projections are based on account data provided by the City for FY 2024. The number of accounts are used to forecast the amount of fixed revenue the City will receive from the bi-monthly meter service charges.

Table 4-3: Potable and Recycled Water Meters
Meter Size FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 Potable Water Meters
5/8" 0 0 0 0 0 0
3/4" 11,802 11,861 11,890 11,920 11,950 11,980
1" 1,723 1,732 1,736 1,741 1,745 1,749
11/2" 351 352 353 354 355 356
2" 382 384 385 386 387 388
3" 25 25 25 25 25 25
4" 7 7 7 7 7 7
6" 2 2 2 2 2 2
8" 3 3 3 3 3 3
Total Potable Water Meters 14,295 14,366 14,402 14,438 14,474 14,510 Recycled Water Meters
5/8" 0 0 0 0 0 0
3/4" 3 3 3 3 3 3
1" 102 102 102 102 102 102
11/2" 58 58 58 58 58 58
2" 49 49 49 49 49 49
3" 0 0 0 0 0 0
4" 0 0 0 0 0 0
6" 0 0 0 0 0 0
8" 0 0 0 0 0 0
Total Recycled Water Meters 212 212 212 212 212 212
Table 4-4 projects the potable and recycled water consumption by class for the study period based on FY 2025 usage data.
17 CITY OF POWAY
45 of95
November 18, 2025, Item #12
Customer Class
Single Family Residential
Tier 1
Tier 2
Tier 3
Multi-Family Residential
Landscape Irrigation
Non-Residential
Agricultural
City Potable Usage
Total Potable Usage
Total Potable Usage (AF)
Recycled Water
City Recycled Usage
Total Recycled Usage
Total Recycled Usage (AF)

4.1.3.REVENUES
Table 4-4: Potable and Recycled Water Use by Class (ccf) FY 2025
1,421,427
751,735
481,280
329,021
208,958
520,237
11,092
125,210
3,848,960
8,836
214,824
0 214,824
493
FY 2026
1,367,376
723,149
462,979
316,510
201,012
500,454
10,670
120,449
3,702,599
8,500
214,824
0 214,824
493
FY 2027
1,370,794
724,957
464,136
317,301
201,515
501,705
10,697
120,750
3,711,855
8,521
214,824
0 214,824
493
FY 2028
1,374,221
726,769
465,297
318,095
202,018
502,959
10,723
121,052
3,721,135
8,543
214,824
0 214,824
493
FY 2029
1,377,657
728,586
466,460
318,890
202,523
504,217
10,750
121,355
3,730,438
8,564
214,824
0 214,824
493
FY2030
1,381,101
730,408
467,626
319,687
203,030
505,477
10,777
121,658
3,739,764
8,585
214,824
0 214,824
493
The City's water revenues consist of operating revenues (i.e., water rate revenues), other operating revenues, and non-operating revenues. Projected water rate revenues under existing rates are calculated for the years FY 2025 to FY 2030 by multiplying current rates (Table 4-1 and Table 4-2) by the corresponding units of service (Table 4-3 and Table 4-4).1 Projecting water rate revenues under existing rates is necessary to evaluate the City's projected baseline financial position in the absence of any proposed rate increases.

Table 4-5: Projected Operating Revenues Under Existing Water Rates Operating Revenues
Bimonthly Service Charges
Potable Water
Recycled Water
Commodity Rates
Single Family Residential
Multi-Family Residential
Landscape Irrigation
Non-Residential
Agricultural
City Potable Use
Drought Surcharge
Recycled
City Recycled Use
Total
FY 2025
$9,828,748
$298,024
$19,267,311
$2,115,499
$1,852,861
$3,551,834
$81,065
$854,851
$0
$1,173,818
$0
$39,024,010
FY 2026
$10,484,326
$316,315
$19,764,111
$2,177,589
$1,891,523
$3,648,310
$81,732
$878,073
$0
$1,220,200
$0
$40,462,179
FY 2027
$10,510,537
$316,315
$19,813,522
$2,183,033
$1,896,252
$3,657,430
$81,937
$880,268
$0
$1,220,200
$0
$40,559,494
FY 2028
$10,536,813
$316,315
$19,863,056
$2,188,490
$1,900,992
$3,666,574
$82,141
$882,469
$0
$1,220,200
$0
$40,657,051
1 Fixed charge revenues = [number of meters assessed] x [monthly rate] x [ 6 billing periods].

Volumetric charge revenues= [annual usage in CCF] x [volumetric rate per CCF].

FY 2029
$10,563,155
$316,315
$19,912,713
$2,193,962
$1,905,745
$3,675,740
$82,347
$884,675
$0
$1,220,200
$0
$40,754,852
FY 2030
$10,589,563
$316,315
$19,962,495
$2,199,446
$1,910,509
$3,684,930
$82,553
$886,887
$0
$1,220,200
$0
$40,852,898

CITY OF POWAY
46 of 95
WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 18 November 18, 2025, Item #12
Table 4-6 shows a summary of other revenues. Revenues from the sale of raw water to a golf course were projected beyond FY 2026 assuming 1,081 acre-feet per year (AFY) in sales. Treated water sales to the Ramona Municipal Water District (RMWD)are assumed to begin in FY 2029. The RMWD wholesale treatment rate is projected to be $532.51 per acre-foot (AF) in CY 2029, inflated from an estimated FY 2026 rate of$460/ AF, which we reduced from a calculated rate of $496.62 to be conservative. The RMWD water treatment rate, which does not include the SDCWA wholesale raw water purchase costs, was calculated through a separate study recently conducted by Raftelis. The majority of other operating and non-operating revenues were held constant beyond FY 2026.

Table 4-6: Water Projected Other Revenues
Other Revenues FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 Raw Water Sales to Golf Course $456,621 $470,852 $470,852 $470,852 $470,852 $470,852 Other Revenues $435,334 $503,373 $503,373 $503,373 $503,373 $503,373 Ramona Revenue $0 $0 $0 $0 $1,863,776 $1,956,965
Total $891,955 $974,225 $974,225 $974,225 $2,838,001 $2,931,190 Table 4-7 shows a revenue summary for the study period based on revenues shown previously in Table 4-5 and Table 4-6. Once again, operating revenues shown in this section reflect projected water rate revenues under existing rates in the absence of any rate increases over the study period.

Table 4-7: Water Revenue Summary
Revenues FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 Operating Revenues $39,024,010 $40,462,179 $40,559,494 $40,657,051 $40,754,852 $40,852,898 Other Revenues $891,955 $974,225 $974,225 $974,225 $2;838,001 $2,931,190 Total $39,915,965 $41,436,405 $41,533,719 $41,631,276 $43,592,854 $43,784,088

4.1.4. O&M EXPENSES
The City's operations and maintenance (O&M) expenses, shown in Table 4-8, are based on the FY 2026 City Adopted budget and projected out through FY 2030. The City's projected purchased water and recycled water expenses were calculated over the study period based on the projected water supply and anticipated/ adopted supply rates from SDCW A and the City of San Diego for FY 2026. Fixed and variable potable water purchase charges were held constant for FY 2027 through FY 2030 as these costs will be collected through a pass-through rate. All other O&M expenses were projected beyond FY 2026 by increasing FY 2026 budgeted expenses using the inflationary factors discussed in Table 3-1.
19 CITY OF POWAY
47 of 95
November 18, 2025, Item #12
Table
4-8
: Water
Operating
Expenditures
Summary
Operating
Expenditures
FY
2025
FY2026
FY2027
FY
2028
FY
2029
FY
2030
Water
Purchases
SDCWA
Fixed
Charges
$5,465,436
$6,326,202 $6,717,552 $6,717,552
$6,717,552 $6,717,552
SDCWA
Supply
Charges
$13,640,588 $14,169,124
$14,896,615
$14,932,985
$14,969,445
$15,005,997
City
of
San
Diego
-Recycled
Water
$417,130
$498,539 $631,342
$674,551
$728,228 $780,812
OtherO&M
Legislative
&
Adm
inistrative
$821,527 $624,700
$643,441
$662,744
$682,627
$703
,105
Finance
Services
$1,918
,804
$2
,556,229
$2,632
,916
$2
,711,903
$2,793,260
$2,877,058
Human
Resources
$875,067
$550
,188
$566,694 $583,694
$601,205
$619
,241
Development
Services
$791
,695
$361,232
$372,069
$383
,231
$394,728
$406
,570
Public
Works
$2
,009,135
$2,808
,569
$2,892,826
$2
,979
,611
$3,068,999
$3,161
,069
Treatment
&
Storage
$5,896
,597
$6,212
,293
$6,402,544 $6,601,712
$6,810,389
$7,029
,216
Water
Transmission
& D
istribution
$2,352,150
$2,594,609
$2,710,906 $2,834,487 $2,965,948
$3,105,940
Reclaimed
Water
$696,730
$718,076
$754,383
$792,902 $833,784
$877,186
Total
Operating
Expenditures
$34,884,859 $37,419,761
$39,221,288
$39,875,373 $40,566,164
$41,283,748

4.1 .5. CAPITAL

IMPROVEMENT
PLAN
The
City
has
developed
a capital
improvement
plan
(CIP)
to
address
ongoing
water
system
needs
in
each
year
throughout
the study
period
. Detailed
CIP
expenditures
in
each year
are
shown
at
the
ind
ividual
project
level
in
Table
4-9.

Inflated
project
costs
in
all
years
throughout
the
study
period
were
provided
by
City
staff.

Most
of
the
Clearwell
Replacement
and
Poway
Treated
Water
Facilities
and
Redundant
Pipeline
project
will
be
funded
by
existing
and
future
debt
issuances
.

C
IT
Y O
F
PO
W
A
Y
48 of
95 WA
TER
A
N
D
WAS
TEWA
TER
COST
OF
SERV
IC
E
A
ND
RATE
ST
UD
Y
REPORT
20 November 18, 2025, Item #12
Table
4-9
: Water
Capital
Improvement
Plan
Capital
Improvement
Projects
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
PWIIP
Clearwell
Replacement
$11,000,
000
$4,231,000
$0
$0
$0
Poway Treated
Water
Facilities
&
Redundant
Pipeline
$1,400,000
$7,500,000
$17,500,000 $17,500,000
$0
Water
Treatment
Plant
WTP
Upgrade
Filters
1-8
$700
,000
$500,000
$0
$0
$0
WTP
Chemical
Tank
Rehab
$100
,000
$875,000
$0
$0
$0
WTP
Filter
Gallery
Upgrades
$0
$0
$25
,000
$100,000
$500
,000
WTP
Washwater
Recovery
Basin
and
Pumping
Station
$0
$0
$25,000
$100,000
$62S
,000
WTP
Electrical/Instrumentation
Upgrades
$0
$50,000
$300
,000 $2,500
,000
$1,000,000
WTP
Sedimentation
Basin
Upgrades
$0
$0
$0
$100,000 $500,000
WTP
Flocculation
Basin
Upgrades
$0
$0
$0
$0
$100,000
Pump
Station
1 Rehabilitation
$0
$0
$25,000
$250,000
$2,000
,000
WTP
Groundwater
Study
$150,000
$0
$0
$0
$0
WTP
Groundwater
Control
Implementation
$0
$200,000
$750
,000
$750,000
$0
Pump
Stations
MCC
Upgrades
(PS
-8,
PS
-9, PS-10
, PS-11
, PS-12)
$400
,000
$400,000
$700
,000
$600,000 $700,000
Pump
Station
No
. 13
MCC
Upgrade
-Old
Coach
$0
$0
$0
$0
$700,000
Pipelines Annual
Water
Valve
Replacement
$315
,000
$330,750
$347,288
$364,652 $382,884
Emergency
Interconnection
#1
(Avenida
La
Valencia)
$250,000
$0
$0
$0
$0
Emergency
Interconnection
#2
(Poway/Springhurst)
$1
,500
,000
$0
$0
$0
$0
Annual
ACP
Water
Main
Replacement
$0
$0
$0
$400,000
$420
,000
Stone
Canyon/Crown
Valley
Steel
Main
Replacement
$1,700,000
$0
$0
$0
$0
Reservoirs
R4
&
R7
Reservoir
Upgrades
$0
$0
$0
$0
$0
R3
Boca
Raton
#1
Rehab/Repair

1.0 MG
(Full
Rehab)
$0
$50,000
$500
,000
$0
$0
R4
Boca
Raton
#2
Rehab/Repair

0.5 MG
(Interior
Only)
$0
$0
$50,000
$500,000
$0
R12
Reservoir
Rehabilitation
(RECYCLED)
$0
$100,000
$1,072,000
$0
$0
RlS
Skyridge
#1
Rehab/Repair

0.5 MG
$0
$50,000
$500,000
$0
$0
R13
Heritage
Rehab/Repair

0.5 MG
$0
$0
$0
$100,000 $750,000
R7
Boulder
Mountain
3 Rehab/Repair

0.2 MG
$0
$0
$0
$75,000
$500
,000
R16
Skyridge
#2
Rehab/Repair
$0
$0
$0
$0
$100
,000
Pressure
Reducing
Stations
Annual
PR
Station
Rehabilitat
ion/Replacement
$0
$500
,000
$525
,000
$551
,250
$578,813
Other Water
Master
Plan
$1,500,000
$0
$0
$0
$0
Total
$17,515,000 $14,136,750
$20,222,288 $23,164,652
· $6,927,884
21 C
ITY
OF
POW
AY
49 of95
November 18, 2025, Item #12

4.1 .6. RECOMMENDED

RESERVE

POLICIES
To
enhance
financial
management
transparency
and
financial
risk
management,
Raftelis
recommends
that
the
Water
Utility
to
maintain
the
following
reserves.

4.1.6.1. Operating
Reserve
The
purpose
of
an
operating
reserve
is
to
provide
working
capital
to
support
the
operation,
maintenance,
and
administration
of
the
utility
. From
a risk
management
perspective,
the
O&M
reserve
supports
the
City
's cash
flow
needs
during
normal
operations
and
also
ensures
that
operations
can
continue
should
significant
events
occur
that
impact
cash
flows
. Operating
reserves
also
provide
a buffer
against
unexpected
increases
in
operating
costs.

As
it is
unlikely
for
a utility
to
perfectly
predict
its
revenues
and
revenue
requirements
for
each
billing
period,
setting
aside
a reserve
to
hedge
the
risk
of
monthly
negative
cash
positions
is
prudent
in
financial
planning.

Another
factor
to
consider
when
creating
a cash
flow
reserve
is
the
frequency
of
billing.

A
utility
that
bills
once
a month
would
require
a lower
minimum
reserve
than
a utility
that
bills
bi-monthly
or
twice
a year
.

Raftelis
recommends
that
the
City
revise
its
current
operating
reserve
target
of
20%
of
operating
expenditures
to
a
minimum
of
90 days
or
25%
of
operating
expenses
and
establish
a target
balance
of
120
days
to
ensure
adequate
working
capital
for
operating
expenses
. The
City
bills
bi-monthly
; thus
120
days
provides
sufficient
working
capital
to
account
for
time
differential
between when
expenses
occur
and
when
revenues
are
collected
. Additionally,
this
accounts
for
revenues
varying
seasonally
while
expenses
remain
relatively
static.

4.1.6.2. Capital
Replacement
Reserve
Adequate
and
timely
capital
replacement
planning
is
a critical
task
to
ensure
reliability
and
sustainability
of
the
water
system.

Capital
reserves
are
used
to
provide
funding
for
capital
expenditures
due
to
the
capital-intensive
nature
of
the
water
system
and
to
provide
a buffer
for
larger
than
anticipated
increases
in
capital
costs
or
emergencies
. The
City
does
not
currently
maintain
a separate
capital
replacement
reserve
. Raftelis
recommends
the
City
adopt
a policy
using
the
estimated
5-year
average
CIP
as
the
target
balance
. In
FY
2026
, this
average
is
$5
.1 million.

4.1.6.3. Recommended
Total
Reserve
Targets
Table
4-10
summarizes
the
proposed
reserve
policies
for
the
City
's water
utility
.

Table
4-10
: Water
Proposed
Reserve
Targets
Reserve
Operating Capital
Replacement
Policy
Minimum
: 90
days
Target:
120
days
5-Y
ear
Average
of
rate-funded
CIP

4.1.7.STATUS
QUO

FINANCIAL
PLAN
Table
4-11
shows
the
operating
cash
flow
detail
for
the
City
during
the
study
period
under
current
rates with
no
adjustments.

As
shown
in
Line
39,
the
City
is
unable
to
meet
its
expenses,
with
particularly
large
deficits
starting
in
FY
2029
through
FY
2030
due
to
increasing
O&M
costs
and
rate
funded
capital
projects.

C
ITY
OF
POWAY
50 of
95 WATER
A
N
D
WASTEW
A
TER
COST
OF
SERV
ICE
AN
D
RATE
STUD
Y
REPORT
22 November 18, 2025, Item #12
Table 4-11: Water Financial Plan under Current Rates
A
Line Revenue
1 Current Rate Revenue
2 Revenue Adjustments
3 Proposed Rate Revenue
4 Other Revenue
5 6
7 8
9 10
11 12
13 14
15 16
17 18
19 20
21 22
23 24
25 26
27 28
29 30
31 32
33 34
35 36
37 38
Fees
Taxes
Grants
Other
Miscellaneous
Raw Water Sales -Contract
Pass-Through Revenue -Contract
Ramona Revenue
Total Other Revenue
Total Revenue
Operating Expenditures
Water Purchases
SDCWA Fixed Charges
SDCWA Supply Charges
City of San Diego -Recycled Water
OtherO&M
Legislative & Administrative
Finance Services
Human Resources
Development Services
Public Works
Treatment & Storage
Water Transmission & Distribution
Reclaimed Water
Extra Ramona Expenses
Total Operating Expenditures
Debt Service & Capital Projects
Water Revenue Bond Series 2021A
Water Revenue Bond Series 2023
Rate Funded Capital Projects
New Proposed Debt
Total Debt Service & Capital Projects
Total Expenses
Net Cashflow
B
FY2026
$40,462,179
$0
$40,462,179
$169,309
$0
$0
$291,064
$43,000
$470,852
$0
$0
$974,225
$41,436,405
$6,326,202
$14,169,124
$498,539
$624,700
$2,556,229
$550,188
$361,232
$2,808,569
$6,212,293
$2,594,609
$718,076
$0
$37,419,761
$752,000
$2,249,825
$5,850,550
$0
$8,852,375
$46,272,136
($4,835,731)
C
FY 2027
$40,559,494
$0
$40,559,494
$169,309
$0
$0
$291,064
$43,000
$470,852
$0
$0
$974,225
$41,533,719
$6,717,552
$14,896,615
$631,342
$643,441
$2,632,916
$566,694
$372,069
$2,892,826
$6,402,544
$2,710,906
$754,383
$0
$39,221,288
$756,200
$2,242,275
$2,272,864
$2,438,175
$7,709,514
$46,930,802
($5,397,083)
D
FY 2028
$40,657,051
$0
$40,657,051
$169,309
$0
$0
$291,064
$43,000
$470,852
$0
$0
$974,225
$41,631,276
$6,717,552
$14,932,985
$674,551
$662,744
$2,711,903
$583,694
$383,231
$2,979,611
$6,601,712
$2,834,487
$792,902
$0
$39,875,373
$754,800
$2,242,525
$2,589,069
$2,438,175
$8,024,569
$47,899,942
($6,268,666)
E
FY 2029
$40,754,852
$0
$40,754,852
$169,309
$0
$0
$291,064
$43,000
$470,852
$0
$1,863,776
$2,838,001
$43,592,854
$6,717,552
$14,969,445
$728,228
$682,627
$2,793,260
$601,205
$394,728
$3,068,999
$6,810,389
$2,965,948
$833,784
$506,943
$41,073,108
$753,000
$2,246,275
$8,315,937
$2,438,175
$13,753,387
$54,826,495
($11,233,641)
F
FY 2030
$40,852,898
$0
$40,852,898
$169,309
$0
$0
$291,064
$43,000
$470,852
$0
$1,956,965
$2,931,190
$43,784,088
$6,717,552
$15,005,997
$780,812
$703,105
$2,877,058
$619,241
$406,570
$3,161,069
$7,029,216
$3,105,940
$877,186
$513,029
$41,796,776
$755,800
$2,243,275
$6,793,999
$2,438,175
$12,231,249
$54,028,025
($10,243,937)
Table 4-12 shows the City's fund balances over the study period under current rates with no adjustments. The operating reserve target is equal to 120 days of operating expenses and the capital reserve target is equal to the 5- year average CiP. The City's operating fund balance (Line 5) wiUnot meet the reserve target (Line 6) in the planning period and, therefore, no funds are transferred to the capital replacement fund (Line 9). 23 CITY OF POWAY
51 of 95
November 18, 2025, Item #12
Table 4-12: Water Projected Fund Balances Under Current Rates

A B C D E F
Line Operating Fund (5100} FY 2026 FY 2027 FY2028 FY2029 FY2030 1 Beginning Balance $11,816,900 $7,158,201 $1,917,156 ($4,240,070) ($15,362,270) 2 Net Cashflow ($4,835,731) ($5,397,083) ($6,268,666) ($11,233,641) ($10,243,937) 3 Interest Income $177,033 $156,037 $111,441 $111,441 $334,322 4 Transfers to Capital Replacement $0 $0 $0 $0 $0
5 Ending Balance $7,158,201 $1,917,156 ($4,240,070) ($15,362,270) ($25,271,885) 6 Target Reserve Balance $12,473,254 $13,073,763 $13,291,791 $13,691,036 $13,932,259 7 Capital Replacement Fund
8 Beginning Balance $8,104,217 $8,504,217 $8,504,217 $8,504,217 $8,504,217 9 Transfers from Operating $0 $0 $0 $0 $0
10 New Debt Proceeds $11,000,000 $11,731,000 $17,500,000 $14,715,164 $0 11 New Grant Proceeds $400,000 $0 $0 $0 $0
12 Debt Funded Capital Projets ($11,000,000) ($11,731,000) ($17,500,000) ($14,715,164) $0 13 Grant Funded Projects ($400,000) $0 $0 $0 $0
14 Ending Balance $8,504,217 $8,504,217 $8,504,217 $8,504,217 $8,504,217 15 Target Reserve Balance $5,164,484 $4,622,979 $4,395,443 $4,463,517 $3,015,512

4.1.8. PROPOSED FINANCIAL PLAN
Balancing the need for the City to meet its revenue requirements while mitigating impacts to ratepayers, Raftelis worked with staff to determine the revenue adjustment schedule in Table 4-13. All revenue adjustments in the rate models are set for January of each calendar year; the City will implement the first revenue adjustment in January 2026 following adoption, and subsequently in January of each fiscal year.

Table 4-13: Water Proposed Revenue Adjustments
CV 2026
January

9.90%
CV 2027
January

4.00%
CV 2028
January

4.00%
CV 2029
January

4.00%
CV 2030
January

4.00%
Table 4-14 incorporates the proposed revenue adjustments into the financial plan. As noted above, the City needs to balance its revenue needs with mitigating rate increases for customers. While the proposed financial plan still shows a deficit in funding for FY 2026, FY 2027 and FY 2029 (Line 39), the City will rely on reserves to fund the balance of expenditures rather than significantly increase its rates in deficit years.

CITY OF POWAY
52 of 95
WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 24 November 18, 2025, Item #12
Table
4-14
: Water
Proposed
Financial
Plan
A
Line
Revenue
1 Current
Rate
Revenue
2 Revenue
Adjustments
3 Proposed
Rate
Revenue
4 Other
Revenue
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Fees Taxes Grants Other Miscellaneous Raw
Water
Sales
-Contract
Pass-Through
Revenue
-Contract
Ramona
Revenue
Total
Other
Revenue
Total
Revenue
Operating
Expenditures
Water
Purchases
SDCWA
Fixed
Charges
SDCWA
Supply
Charges
City
of
San
Diego
-Recycled
Water
Other
O&M
Legislative
&
Administrative
Finance
Services
Human
Resources
Development
Services
Public
Works
Treatment
&
Storage
Water
Transmission
& D
istribution
Reclaimed
Water
Extra
Ramona
Expenses
Total
Operating
Expenditures
Debt
Service
&
Capital
Projects
Water
Revenue
Bond
Series
2021A
Water
Revenue
Bond
Series
2023
Rate
Funded
Capital
Projects
New
Proposed
Debt
Total
Debt
Service
&
Capital
Projects
Total
Expenses
Net
Cashflow
B
FY
2026
$40,462,179 $2,002,878 $42,465,057
$169,309
$0 $0
$291,064 $43,000 $470,852
$0 $0
$974,225
$43,439,283 $6,326,202 $14,169,124
$498,539 $624,700
$2,556,229
$550,188 $361,232
$2,808,569 $6,212,293 $2
,594,609 $718,076
$0
$37,419,761
$752,000
$2,249,825 $5,850,550
$0
$8,852,375 $46,272,136 ($2,832,853)
C
FY
2027
$40,559,494 $4,906,888 $45,466,381
$169,309
$0 $0
$291,064 $43,000 $470,852
$0 $0
$974,225
$46,440,606 $6,717,552 $14,896,615
$631,342 $643,441
$2,632,916
$566,694 $372,069
$2,892,826 $6,402,544 $2,710,906
$754,383
$0
$39,221,288
$756,200
$2,242,275 $2,272,864 $2,438,175 $7,709,514 $46,930,802 ($490,195) D
FY
2028
$40,657,051 $6,741,720 $47,398,771
$169,309
$0 $0
$291,064 $43,000 $470,852
$0 $0
$974,225
$48,372,996 $6,717,552 $14,932,985
$674,551 $662,744
$2,711,903
$583,694 $383,231
$2,979,611 $6
,601,712
$2,834,487
$792,902
$0
$39,875,373
$754,800
$2,242,525 $2,589,069 $2,438,175 $8,024,569 $47,899,942 $473,054
E
FY
2029
$40,754,852 $8,658,449 $49,413,301
$169,309
$0 $0
$291,064 $43,000 $470,852
$0
$1,863,776 $2,838,001 $52,251,302 $6
,717,552
$14,969,445
$728,228 $682,627
$2,793,260
$601,205 $394,728
$3,068,999 $6,810,389 $2
,965,948 $833,784 $506,943
$41,073,108
$753,000
$2,246,275 $8,315,937 $2,438,175 $13,753,387 $54,826,495 ($2,575,192) F
FY
2030
$40,852,898 $10,660,566 $51,513,464
$169,309
$0 $0
$291,064 $43,000 $470,852
$0
$1,956,965 $2,931,190 $54,444,654 $6,717,552 $15,005,997 $780,812 $703,105
$2,877,058
$619,241 $406,570
$3,161,069 $7,029,216 $3,105,940
$877,186 $513,029
$41,796,776
$755,800
$2,243,275 $6,793,999 $2,438,175 $12,231,249 $54,028,025 $416,629
Table
4-15
shows
the
City's
projected
fund
balances
over
the study
period.

The
operating
reserve
target
is
equal
to
120
days
of
operating
expenses
to
mitigate
against
any
potential
cash
flow
risks
or
unexpected
O&M
costs
. The
capital
reserve
target
is
equal
to
the
5-year
average
CIP
. The
City's
combined
operating
and
capital
fund
balances
will
meet
the
minimum
reserve
levels
beginning
over
the
study
period
under
proposed
rate
adjustments
.
25 C
IT
Y
OF
POWAY
53 of
95 November 18, 2025, Item #12
Table 4-15: Water Projected Fund Balances Under Proposed Rates

A B C D E F
Line Operating Fund (5100) FY 2026 FY 2027 FY 2028 FY2029 FY2030 1 Beginning Balance $11,816,900 $9,171,094 $8,881,599 $9,557,274 $7,176,219 2 Net Cashflow ($2,832,853) ($490,195) $473,054 ($2,575,192) $416,629 3 Interest Income $187,047 $200,700 $202,622 $194,137 $555,858 4 Transfers to Capital Replacement $0 $0 $0 $0 $0
5 Ending Balance $9,171,094 $8,881,599 $9,557,274 $7,176,219 $8,148,706 6 Target Reserve Balance $12,473,254 $13,073,763 $13,291,791 $13,691,036 $13,932,259 7 Capital Replacement Fund
8 Beginning Balance $8,104,217 $8,504,217 $8,504,217 $8,504,217 $8,504,217 9 Transfers from Operating $0 $0 $0 $0 $0
10 New Debt Proceeds $11,000,000 $11,731,000 $17,500,000 $14,715,164 $0 11 New Grant Proceeds $400,000 $0 $0 $0 $0
12 Debt Funded Capital Projets ($11,000,000) ($11,731,000) ($17,500,000) ($14,715,164) $0 13 Grant Funded Projects ($400,000) $0 $0 $0 $0
14 Ending Balance $8,504,217 $8,504,217 $8,504,217 $8,504,217 $8,504,217 15 Target Reserve Balance $5,164,484 $4,622,979 $4,395,443 $4,463,517 $3,015,512 Figure 4-1 through Figure 4-3 display the Financial Plan in graphical format. Figure 4-1 illustrates the operating position of the City, where expenses, inclusive ofreserve funding, are shown by stacked bars; and total revenues at both current rates and proposed rates are shown by the horizontal trend lines. Figure 4-2 summarizes the projected CIP and its funding sources. Figure 4-3 displays the ending total reserve balance for the water utility, including operating and capital funds. The horizontal trend lines indicate the minimum and target reserve balances and the bars indicate ending reserve balance. For the purpose of this study, the Poway Treated Water Facilities & Redundant Pipeline project is primarily funded through issuance of debt in late FY 2026. Costs of this project are unknown at this time but included at the highest estimated cost for planning purposes.

CITY OF POWAY
54 of95
WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 26 November 18, 2025, Item #12
Figure 4-1: Water Operating Financial Plan at Proposed Rates Operating Financial Plan
V\ $60
C
.2
2 $50
$40
$30
$20
$10
$0
-$10
FY 2026 FY 2027 FY 2028 FY 2029 FY 2030
-Operating Expenses -Water Purchases -Rate Funded Capital Debt Service -Net Cashflow -Current Revenue -Proposed Revenue
Figure 4-2: Proposed Water Capital Improvement Plan and Funding Source Capital Funding Sources
V> $25.0 $23.2
C
.Q
·-$20.2
2 $20.0 $17.5
$15.0 $14.1
$10.0
$6.9
$5.0
$0.0
FY 2026 FY 2027 FY 2028 FY 2029 FY 2030
■ Debt Funded ■ Rates/Reserves Funded ■ Connection Fee Funded 27 CITY OF POWAY
55 of 95
November 18, 2025, Item #12
\I\
$20
C .2
$18
2 $16 $14 $12 $10 $8 $6 $4 $2 $0
CITY
OF
POWAY
56 of
95 Figure
4-3
: Water
Proje
cted
Ending
Balances
at
Proposed
Rates
Operating
&
Capital
Reserves
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
-
Total
Reserves
-
M
ini
mum
Re
serve
-
Target
Reserve
WATER
AND

WASTEWATER
COST
OF
SERV
ICE
AND
RATE
STUDY
REPORT
28 November 18, 2025, Item #12

4.2. Cost
of
Service
Analysis

4.2.1 . COST
OF

SERVICE

METHODOLOGY
The
first
step
in
the
COS
analysis
process
is
to
determine
the
revenue requirement,
which
is
based
on
the
results
of
the
financial
plan
and
the
proposed
revenue
adjustments
. The
framework
and
methodology
utilized
to
develop
the
COS
analysis
and
to
apportion
the
revenue
requirement
to
each
customer
class
and
tier
is
informed
by
the
processes
outlined
in
the
Ml
Manual.

COS
analyses
are
tailored
specifically
to
meet
the
unique
needs
of
each
water
system
. However,
there
are
four
distinct
steps
in
every
analysis
to
recover
costs
from
customer
classes
in
an
accurate
, equitable,
and
defensible
manner:

1. Cost
fnnctionalization:

O&M
expenses
and
capital
assets
are
categorized
by
their
function
in
the
system.

Functions
include
supply
, treatment,
storage,
distribution,
customer
service,
etc
.

2. Cost
causation
component
allocation:
the
functionalized
costs
are
then
allocated
to
cost
causation
components
based
on
their
burden
on
the
system
. The
cost
causation
components
include
supply,
base
delivery,
peaking,
meter
, customer,
etc.

The
revenue
requirement
is
allocated
according
to
the
cost
causation
components,
resulting
in
the
total
revenue
requirement
for
each
cost
causation
component.

3. Unit
cost
development:
the
revenue
requirement
for
each
cost
causation
component
is
divided
by
the
appropriate
units
of
service
to
determine
the
unit
cost
for
each
cost
causation
component.

4. Revenue
requirement
distribution:
the
unit
cost
is
utilized
to
distribute
the
revenue
requirement
for
each
cost
causation
component
to
customer
classes
and
tiers
based
on
their
individual
service
units
. The
City
's
customer
classes
include
Domestic,
Agricultural,
Commercial,
Irrigation,
Construction,
and
Recycled.

4.2.2.REVENUE
REQU

IREMENT
The
revenue
requirement
for
the
proposed
rates
will
be
based
on
FY
2026,
the
designated
Test
Year.

Table
4-16
shows
the
revenue
requirement
derivation with
the
total
revenue
required
from
rates
. The
totals
shown
in
the
"Operating"
and
"Capital"
columns
are
the
total
O&M
and
capital
revenue
requirements,
respectively,
that
are
to
be
recovered
through
rates
. The
operating
costs
(Line
7)
flow
from
Table
4-8.

The
Debt
Service
category
(Line
13)
represents
both
replacement
capital
projects
(Table
4-9)
and
any
proposed
debt.

Note
there
is
no
new
debt
service
in
FY
2026,
the new
debt
service
payments
will
start
in
FY
2027.

Revenue
offsets
are
composed
of
various
miscellaneous,
non-rate
revenues,
shown
in
Table
4-6.

To
arrive
at
the
rate
revenue
requirement
, we
subtract
these
revenue
offsets
from
the
combined
operating
and
debt
service
costs.

The
net
cash
flow
from
Table
4-14,
Line
39,
is
shown
on
Line
25 as
Adjustment
for
Cash
Balance.

The
adjustment
to
annualize
the
rate increase
(Line
26)
is
due
to
the
mid-year
proposed
revenue
adjustment
occurring
in
late
January
2026,
following
potential
adoption.

These
adjustments
are
then
combined
to
arrive
at
the
total
annual
revenue requirement
from
rates
. This
is
the
amount
that
the
City's
rates
are
designed
to
collect,
for
almost
a full
year,
in
the
"Total"
column
at
Line

28. 29
C
IT
Y
OF
POWAY
57 of
95 November 18, 2025, Item #12
Table
4-16
: Water
Revenue
Requirement
A
B
C
D
Line
Revenue
Requirements
Operating
Capital
Total
1 Operating
Costs
2 SDCWA
Fixed Charges
$6,326,202
$0
$6,326,202
3 SDCWA
Supply
Charges
$14,169,124
$0
$14,169,124
4 City
of
San
Diego
-Recycled
Water
$498,539
$0
$498,539
5 Treatment
&
Storage
$6,212,293
$0
$6,212,293
6 OtherO&M
$10,213,603
$0
$10,213,603
7 Subtotal
Operating
Costs
$37,419,761
$0
$37,419,761
8 Capital
Expenditures
9 Water
Revenue
Bond
Ser
ies
2021A
$0
$752,000
$752,000
10 Water
Revenue
Bond
Series
2023
$0
$2,249,825
$2,249,825
11 Rate
Funded
Capital
Projects
$0
$5,850,550
$5,850,550
12 New
Proposed
Debt
$0
$0
$0
13 Subtotal
Debt
Service
$0
$8,852,375
$8,852,375
14 Total
Revenue
Requirements
$37,419,761
$8,852,375
$46,272,136
15 Less:

Revenue
Offsets
16 Interest
$187,047
$0
$187,047
17 Fees
$169,309
$0
$169,309
18 Taxes
$0
$0
$0
19 Grants
$0
$0
$0
20 Other
$291,064
$0
$291
,064
21 Miscellaneous
$43,000
$0
$43,000
22 Raw
Water
Sales
-Contract
$470,852
$0
$470,852
23 Total
Revenue
Offsets
$974,225
$0
$974,225
24 Less:

Adjustments
25 Adjustment
for
Cash
Balance
$2,832,853
$0
$2,832,853
26 Adjustment
for
Mid-Year
Increase
($2,002,878)
$0
($2,002,878)
27 Total
Adjustments
$829,975
$0
$829,975
28 Total
Revenue
Requirement
from
Rates
$35,615,561
$8,852,375
$44,467,935

4.2.3. FUNCTIO

NALIZATION
AND

ALLOCATION
OF

EXPENSES
After
determining
the
revenue requirement,
the
next
step
of
the
COS
analysis
is
to
allocate
the
O&M
expenses
and
capital
assets
to
the
following
functions
:
l.