Item 4 - Public Hearing for Proposed Five-Year Water, Recycled Water, & Wastewater Rates

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January 20, 2026, Item #4
DATE:

TO:

FROM:

CONTACT:

SUBJECT:

Summary:

AGENDA REPORT CityofPoway
January 20, 2026
Honorable Mayor and Members of the City Council
Craig Schmollinger, Director of Finance ~
Craig Schmollinger, Director of Finance
(858) 668-4411 or [email protected]

CITY COUNCIL
Public Hearing for Proposed Five-Year Water, Recycled Water, and Wastewater Rates On November 18, 2025, the City set the January 20, 2026 public hearing date for proposed Five-Year Water, Recycled Water, and Wastewater Rates. The California Constitution, Article XIIID, Section 6, states local governments must hold a Majority-Protest Public Hearing and notify property owners at least 45 days in advance of the public hearing related to the proposed water, recycled water, and wastewater rates. The notice (Attachment C) was mailed to 15,946 property owners with municipal water and/or wastewater service on November 20, 2025, at least 45 days prior to the public hearing.

Under the law, if written protests against the proposed rate increases are presented by a majority of property owners (i.e. more than 7,973 property owners), the increases shall not be approved. If a majority protest does not exist, Council may elect to approve the proposed five-year rates at the conclusion of the public hearing. As of January 12, 2026 a total of 30 protests were filed with the City Clerk. A summary of the protests filed with the city is shown in Attachment E. The actual protests are on file with the City Clerk's Office. Additionally, objections to the proposed rates could have been submitted pursuant to Government Code section 53759.1. Any person that wishes to challenge the rates in a legal proceeding must file an objection, which complies with the requirements detailed in the mailed and website posted notice. There were zero submitted objections substantive and procedural received by the deadline of January 6, 2026, which was more than 45 days from the date of mailing of the Proposition 218 notices.

Recommended Action:

It is recommended the City Council take public input, close the public hearing, consider any protests, objections and responses, and adopt the resolutions enclosed herewith as Attachments A and B, if a majority protest does not exist.

Discussion:

After a review of water, recycled water, and wastewater projections along with industry experts 2 of 33
January 20, 2026, Item #4
Raftelis
Financial
Consultants,
Inc
(Raftelis),
new
rate
increases
are
needed
to
ensure
the
financial
sustainability
of
the
enterprise
systems
and
to
ensure
the
City
can
continue
to
provide
safe
and
reliable
water
and
wastewater
service.

The
November
18,
2025
staff
report
contained
a significant
amount
of
information
explaining
why
rate
increases
were
needed,
including
moving
to
a
five-year
rate
adjustment
cycle,
along
with
proposed
wholesale
service
pass-through
provisions.

As
such,
this
staff
report
will
briefly
summarize
the
information
contained
in
that
staff
report.

The
November
18,
2025
staff
report
has
been
included
as
a
courtesy
(Attachment
D)
for
those
unfamiliar
with
information
presented
when
setting
the
public
hearing.

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
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
has
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.

Proposed
Water
Rates:

Five-year
annual
revenue
increases
are
being
proposed
with
implementation
in
Calendar
Year
2026-
2030
for
water services
to
cover
the
increasing
costs
of
providing
safe,
reliable
water
on
demand
to
ratepayers.

The
increases
are
necessary
to
fund
the
costs
of
imported
water,
capital
expenses,
operational
expenses,
and
appropriate
reserve
levels.

The
two
largest
rate
drivers
are
the
cost
of
imported
water
and
capital
projects.

Imported
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
San
Diego
County
Water
Authority
(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.
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January 20, 2026, Item #4
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
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, including negotiating a water sales agreement with RMWD per a Memorandum of Understanding recently approved by both agencies' governing bodies.

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 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.

Uniform Single-Family Residential Volumetric Rate:

Included in the rate recommendations is a transition from a three-tiered increasing cost per tier volumetric water rate structure for Single Family Residential customers to a uniform "single-tier" water 4 of 33
January 20, 2026, Item #4
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 California state law. 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 invalidating tiered water rates for two local water purveyors, based on rulings 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 more difficult to justify and vulnerable to legal challenges -though the City believes that the prior rates remain fully defensible under Proposition 218. Each case explained the tiered rate structure at issue did not support the data provided on increased costs for tiered rates and held the water utilities to a high standard of proof to establish each tier matched an identifiable increase in cost of service. City staff therefore is recommending moving to the proposed uniform water rate structure as a more equitable and defensible structure.

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 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 future year inflation adjustments are unknown figures to be passed along once known (see below on wholesale pass through adjustments).

Table 1 below shows the proposed revenue adjustments for the water enterprise. It is important to note individual adjustment customer impacts will vary based on customer type, meter size, and volume of water used over a bimonthly period.

Table 1: Proposed Revenue Adjustments (total enterprise) Figures are for Poway revenue adjustments and do not include future year pass-through adjustments from SDCWA for wholesale water or inflation tied to CPI.

Table 2 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). 5 of 33
January 20, 2026, Item #4
Table 2: Estimated Residential Impacts of Pro osed Revenue Ad"ustments Estimated Water Bill1 $302.69 $351 .12 $365.16 $379.77 $394.96 $410.76 Bimonthl Im act($) NIA $48.43 $14.04 $14.61 $15.19 $15.80 Monthly Impact($) NIA $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 CPI increases that cause an exceedance of anticipated revenues.

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.

Recycled Water:

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 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, Recycled Water, Wastewater Treatment and 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.

Wholesale energy costs are proposed to 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, only if the actual cost increases for purchased energy exceed those projected for energy costs.
6 of 33
January 20, 2026, Item #4
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 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 was 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:

Five-year rate adjustments are being proposed for wastewater services to cover the increasing costs of providing safe, reliable wastewater services to ratepayers. The adjustments are necessary to fund the costs of wastewater treatment, capital expenses, and operational expenses. These proposed rate increases reflect the use of reserves to temper the impacts to ratepayers. 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 and disposal costs paid to 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 plant is 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 7 of 33
January 20, 2026, Item #4
(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 a significant amount of 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 developments helps offset the revenue needed from wastewater rates, which has a rate suppression effect.

Table 3 below shows the proposed revenue adjustments proposed for the wastewater enterprise. It is important to note individual adjustment impacts will vary based on customer type and volume of water used over a bimonthly period.

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

Table 4 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.

Table 4: Estimated Residential Impacts of Proposed Revenue Adjustments Debt Funding Option Existing Jan. 2026 Jan. 20272 Jan. 20282 Jan. 20292 Jan. 20302 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 $3.62
Monthly Impact($) NIA -$1.09 $0.00 $1.71 $1.79 $1.81

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

3. Figures are for Poway revenue adjustments and do not include future year pass-through adjustments from MetroJPA for wholesale wastewater treatment costs
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January 20, 2026, Item #4
Combined Household Rate Adjustment Impacts:

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.

Table 5: Estimated Residential Combined Impacts Proposed 2026 Revenue Adjustments SFR Combined Bimonthly Bill Impacts at Different Usage Levels• 3/4" Meter • Uniform $2.500
$2,216.28
I
$2.000
$1,681.78
$1,500
$1,147.28
$1,000
$733.46
$676.92 /
$529.10 ss7;•47
$500
$253.20 $281.60
\ /
I $0
$253.20 $466.86 $529.10 $676.92 $1,147.28 $1,681.78 $2.216.28 10 units 29unlts 37unlts 56unlts 100 units 150 units 200 units ■ Current Bimonthly Bill $253.20 $,466.86 $529.10 $676.92 $1,147.28 $1,681.78 $2.216.28 ■ Proposed Bimonthly BIii • Uniform $281.60 $511.79 $577.47 $733.46 $1,094.70 $1,505.20 $1,915.70 Impact($)• Uniform $28.40 $44.93 $48.37 $56.54 -$52.58 ·$176.58 -$300.58 Impact (%)-Uniform 11.2% 9.6% 9.1% 8A% -4.6% ·10.5% ·13.6% Community Outreach:

In addition to the 15,946 Prop 218 Notices mailed to property owners, to help the community understand the impacts of the proposed five-year rate adjustments, staff updated the residential bill estimator tool (https://poway.org/Rates-Fees). This was provided to help ratepayers 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, was posted to the homepage of the City's website and the Water and Sewer Services section of the Finance Department webpage.

Timeline:

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

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

November 18, 2025 By November 20, 2025 January 20, 2026 Following adoption 9 of 33
January 20, 2026, Item #4
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.

Responses to Objections:

Except for the 30 written protests provided without a reason for the protest, the City did not receive any objections to the proposed water rates, pursuant to Government Code section 53759.1. If objections are received after the publishing of this report, the City will provide a response in writing or orally at the hearing, though it is not required to do so since all objections were required to be submitted to the City on or before January 6, 2026.

Environmental Review:

This action is not subject to review under the California Environmental Quality Act (CEQA).

Fiscal Impact:

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 at least 45 days in advance of the public hearing related to proposed water, recycled water, and wastewater rates. The notice (Attachment C) was mailed on November 20, 2025, at least 45 days prior to the public hearing. Objections to the proposed rates were due, in writing, by January 6, 2026, but the city received no objections.

A Notice of Public Hearing was published in the Poway News Chieftain on January 1, 8, and 15, 2026.

As of January 12, 2026, a total of 30 protests were filed with the City Clerk. (Remainder of page intentionally left blank)
10 of 33
January 20, 2026, Item #4
Attachments:

A. Resolution Establishing Water and Recycled Water Service Charges and Rates B. Resolution Establishing Wastewater Service Charges and Rates C. Notice of Public Hearing
D. November 18, 2025 Staff Report
E. Summary of Protests Received
Reviewed/Approved By:

Assistant City Manager
Reviewed By:

Alan Fenstermacher
City Attorney
Approved By:

Chw
City Manager
RESOLUTION NO. 26-

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF

POWAY, CALIFORNIA, ESTABLISHING WATER SERVICE
CHARGES AND RATES PER SECTION 13.11.120 OF THE

POWAY MUNICIPAL CODE
WHEREAS, the City of Poway provides water services to residents of Poway; WHEREAS, the California Constitution Article XIII D §6(a)(2) requires local governments hold a majority-protest public hearing and notify rate payers not less than 45 days in advance of the public hearing before increasing water rates and charges; WHEREAS, the City, after providing 45 days written notice to persons eligible to receive such notice, intends to approve a five year schedule of water and recycled water rates and charges, to include pass through charges and adjustments as authorized by Government Code §53756, with such five year rates to become effective respectively on January 21, 2026, January 1, 2027, January 1, 2028, January 1, 2029, and January 1, 2030; WHEREAS, after providing notice per Proposition 218 (“Notice”) on November 20, 2025, and receiving no objections in response thereto by the deadline identified in the Notice, the City Council of the City of Poway held a duly noticed public hearing on January 20, 2026, pursuant to the provisions of Article XIIID of the California Constitution and the Proposition 218 Omnibus Implementation Act;
WHEREAS, the City Council received a final tabulation of all written protests received by the City Clerk at the January 20, 2026, Proposition 218 hearing and the protests did not constitute a majority of those persons entitled to receive the Notice; WHEREAS, in the Notice, the City invited persons with objections to the rates proposed for approval herein to submit objections per Government Code § 53759.1 on or before January 5, 2025, which was at least 45 days after the Notice was sent out and posted on the City’s website, and no such objections were received by the City by the deadline identified in the Notice; WHEREAS, the City Council considered all written protests, written objections (none of which were timely received) , and heard oral arguments to the proposed rate structure changes and rates and charges at the public hearing.

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Poway as follows:

SECTION 1: That the above recitations are true and correct; SECTI
ON 2: The City Council hereby finds that no majority protest for the water and recycled rates and charges were received, and no objections requiring City response per Government Code 53759.1 (c) and (d) were timely submitted to the City; SECTION 3: The City Council hereby establishes and approves the five-year rates and charges for water and recycled water, effective January 21, 2026, January 1, 2027, January 1, 2028, January 1, 2029, and January 1, 2030, as set forth in the Notice of Public Hearing (Attachment C), for all bills mailed on or after January 21, 2026. The City Council, per 11 of 33
January 20, 2026, Item #4

ATTACHMENT A
Resolution No. 26-

Page 2 ends

Government Code 53756, also approves the pass through of wholesale charges and authorized inflation adjustments in accordance with a clearly defined formula, both of which authorizations are detailed in the Notice. Any water rates or fees associated with water service, including raw water, not addressed within the Notice shall remain in full force and effect as previously adopted; SECTION 4: That the setting of such charges and rates is statutorily and categorically exempt from the requirements of CEQA, pursuant to Section 21080(b)(8) of the Public Resources Code, and Title 14 of the California Code of Regulations, Sections 15273(a) and 15307; SECTION 5: This Resolution shall take effect immediately.

PASSED, APPR
OVED AND ADOPTED at a Regular Meeting of the City Council of the City of Poway, California on the 20th day of January, 2026 by the following vote, to wit:

AYES:

NOES:

ABSTAINED:

ABSENT:

DISQUALIFIED:
______________________________
Steve Vaus, Mayor
ATTEST:
____________________________________
Carrie Gallagher, CMC, City Clerk
12 of 33
January 20, 2026, Item #4
RESOLUTION NO. 26-

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF

POWAY, CALIFORNIA, ESTABLISHING SEWER SERVICE
CHARGES AND RATES PER SECTION 13.03.010 OF THE

POWAY MUNICIPAL CODE
WHEREAS, the City of Poway provides sewer services to residents of Poway; WHEREAS, the California Constitution Article XIII D §6(a)(2) requires local governments hold a majority-protest public hearing and notify rate payers not less than 45 days in advance of the public hearing before increasing water rates and charges; WHEREAS, the city is proposing sewer rate structure modifications and f ive-year sewer rates and charges, effective January 21, 2026, January 1, 2027, January 1, 2028, January 1, 2029, and January 1, 2030;
WHEREAS, the City Council of the City of Poway held a duly noticed public hearing on January 20, 2026, pursuant to the provisions of Article XIIID of the California Constitution and the Proposition 218 Omnibus Implementation Act;
WHEREAS, the City Council received a final tabulation of all written protests received by the City Clerk at the January 20, 2026 Proposition 218 hearing; and WHEREAS, the City Council considered all written protests, written objections, and heard oral arguments to the proposed rate structure changes and rates and charges at the public hearing.

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Poway as follows:

SECTION 1: That the above recitations are true and correct; SECTI
ON 2: The City Council hereby finds that no majority protest for the sewer rates and charges were received;
SECTION 3: The City Council hereby establishes and approves the five-year rates and charges for sewer, effective January 21, 2026, January 1, 2027, January 1, 2028, January 1, 2029, and January 1, 2030, as set forth in the Notice of Public Hearing (Attachment C of the agenda report), for all bills generated on or after January 21, 2026 . Any sewer rates or fees associated with sewer service not addressed within the Notice of Public Hearing shall remain in full force and effect as previously adopted;
SECTION 4: Residential wastewater generation calculations take place once per year and will be based on the water use for the property. The residential wastewater generation amount is determined based on November through April water usage (winter water use) to help exclude water used on landscaping in the warmer months. The lowest water consumption during this period is selected for each of the three most recent years, and then averaged. Eighty-five percent of that averaged amount is estimated as wastewater generation. For newly constructed single- family residential properties with no winter water use history, the customer will be billed for 15 units of wastewater generation (the average residential generation calculated in the November 13 of 33
January 20, 2026, Item #4

ATTACHMENT B
Resolution No. 26-

Page 2 ends

10, 2025 Water and Wastewater Cost of Service Study Report) until winter water use is established with one full billing cycle during the winter months of November through April. After one year of winter water use is established, the customer will be billed based on the methodology above for existing residential properties. For single family properties that have both potable well water and municipal water, the customer will be billed based on the winter water use but no less than 15 units of wastewater generation. If any rate increases are proposed within 90 days of any residential wastewater generation calculations, the residential wastewater generation calculations will not occur until the new rates have been adopted;
SECTION 5: That the setting of such charges and rates is statutorily and categorically exempt from the requirements of CEQA, pursuant to Section 21080(b)(8) of the Public Resources Code, and Title 14 of the California Code of Regulations, Sections 15273(a) and 15307; SECTION 6: This Resolution shall take effect immediately.

PASSED, APPR
OVED AND ADOPTED at a Regular Meeting of the City Council of the City of Poway, California on the 20th day of January, 2026 by the following vote, to wit:

AYES:

NOES:

ABSTAINED:

ABSENT:

DISQUALIFIED:
______________________________
Steve Vaus, Mayor
ATTEST:
____________________________________
Carrie Gallagher, CMC, City Clerk
14 of 33
January 20, 2026, Item #4
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 upcoming 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."
15 of 33
January 20, 2026, Item #4

ATTACHMENT C
16 of 33
January 20, 2026, Item #4

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,
and
wholesale
water
pur
chase
costs
from
the
SDCWA,
which
alone
represent
over
60%
of
the
costs
to
provide
safe
and
reliable
water
services
to
custom
ers
. For
wastewater
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
.
("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
Cl
P 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.
17 of 33
January 20, 2026, Item #4

CURRENT
AND

PROPOSED
WATER
RATE
S
*
518'
72 .69

81.54 84.81
88 .21

91.74 95.41
314'
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 NIA

NIA NIA NIA NIA
Tier
2: 21-56
Units

7.78 NIA NIA NIA NIA NIA
Tier
3:
57+
Units

10.69 NIA

NIA NIA NIA NIA
Uniform
Rate
NIA

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 NIA

NIA NIA NIA NIA
Non-residential

7.29 NIA NIA NIA NIA NIA
Multi-family
Residential

6.88 NIA

NIA NIA NIA NIA
City
Potable
Usage

7.29 NIA
NIA

NIA NIA NIA
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.
*Wa
ter
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.
18 of 33
January 20, 2026, Item #4

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
ser
vice
prov
ided
properties.

How
Wastewater
Rates
are
Calculated
Single
famil
y
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
custom
er 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.
19 of 33
January 20, 2026, Item #4

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
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.
20 of 33
January 20, 2026, Item #4
PO
Box
789
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
ser
ies
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.
·Next,
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.

November 18, 2025, Item #12
21 of 33
January 20, 2026, Item #4

ATTACHMENT D
DATE:

TO:

FROM:

CONTACT:

SUBJECT:

Summary:

November 18, 2025
Honorable Mayor and Members of the City Council
/~· -
Craig Schmollinger, Director of Finance ~
y
Craig Schmollinger, Director of Finance
(858) 668-4411 or [email protected]
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 Cal_ifornia 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
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January 20, 2026, Item #4

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).
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November 18, 2025, Item #12
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January 20, 2026, Item #4
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
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January 20, 2026, Item #4
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:

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, 4of95
November 18, 2025, Item #12
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January 20, 2026, Item #4
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
Rat
io 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
to
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
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November 18, 2025, Item #12
26 of 33
January 20, 2026, Item #4
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
Res
idential
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
a¾"
water
meter
and
use
29 units
of
water
over
one
bimonthly
billing
period
(every
two
months).
(Remainder
of
page
intentionally
left
blank)
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November 18, 2025, Item #12
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January 20, 2026, Item #4
Table
1:

Estimated
Residential
Impacts
of
Proposed
Revenue
Adjustments
Debt
Funding
Option
Existing
Jan.2026
Jan.
2027
'
Jan.
2028
'
Jan.
2029
'
Jan.
2030
Revenue
Increase(%)
N/A

9.9%

4.0%

4.0%
Estimated
Water
Bill
1 $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
a ¾"
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
a¾"
meter.

Table
2:

Estimated
Residential
Impacts
of
Proposed
2026
Revenue
Adjustments
$2
,500
$2,000 $1
,500
$1,000
$500
$0
$165
.4
7 $195.13
$165
.4
7 10unlts
■
Cu
rrent
BIii
$165.
47 Proposed
Bill
-Uniform
$195
.13
Impact($)•
un~orm
$29
.66
Imp
act(
%
) -Unilonn
17 .9%
Recycled
Water:

SFR
Bimonthly
Impacts
at
Different
Usage
Levels
-3/4"
Meter
-Uniform
Rates $2
,052
.11
$1,517
.61
$416.80
$302
.69
$351
•12
$364.93
$302.69
$364.93
$512
.75
$118

3.11 $1
,517.61
$2,052.11
29unlts
37unlts
56units
100
un
its
lSOun
lts
200unlt
s
$302.69
$364
.93
$512
.75
$983
.11
$1,517.61
$2
,052.11
$351.12
$416
.80
$572
.79
$934
.03
$1
,344
.53
$1,755
.03
$48.43
$51.87
$60
.04
-$49
.08
-$173
.08
-$297
.08
16 .0%

14.2 %
11 .7%
-5.0
%
-11
.4%
·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
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
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January 20, 2026, Item #4
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.

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
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January 20, 2026, Item #4
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 plant is 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).

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.
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November 18, 2025, Item #12
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January 20, 2026, Item #4
Table
3:

Estimated
Residential
Impacts
of
Proposed
Revenue
Adjustments
Debt
Funding
Option
Existing
Jan.
2026
Jan.
2027'
Jan.
2028
'
Jan.
2029
Jan.
2030
'
Revenue
Increase(%)
NIA
0%
0%
3%
3%
3%
Estimated
Wastewater
Bill
1 $115.03
$112.86
$112.86
$116.27
$119.86
$123.48
Bimonthly
Impact($)
N/A
-$2.17
$0.00
$3.41
$3.59
$3.62
Monthly
Impact($)
NIA
-$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
5cd $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 of
95 November 18, 2025, Item #12
31 of 33
January 20, 2026, Item #4
Table 5: Estimated Residential Combined Impacts Proposed 2026 Revenue Adjustments $2,500
$2,000
$1,500
Sl,000
$500
so
■ Current Bimonthly Bill
■ Proposed Bimonthly Bill-Uniform
Impact($) -Uniform
Impact(%) -Uniform
Community Outreach:

SFR Combined Bimonthly Bill Impacts at Different Usage Levels -3/4" Meter -Uniform $253.20 $281.60
$253.20
10 units
$253.20
$281.60
$28.40

11.2%
$511.79
$466.86
$466.86
29 units
$466.86
$511.79
$44.93

9.6%
ss2s.10 557?·47
$529.10
37 units
$529.10
$577.47
$48.37

9.1%
$1,681.78
$1,147.28
$733.46
$676.92
$676.92 $1,147.28 $1,681.78
56 units 100 units 150 units
$676.92 $1,147.28 $1,681.78
$733.46 $1,094.70 $1,505.20
$56.54 -$52.58 -$176.58

8.4% -4.6% -10.5%
$2,216.28
$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 webpage. 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
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January 20, 2026, Item #4
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:

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

Attachments:

A. Notice of Public Hearing
City of Poway Council Chambers
13325 Civic Center Drive
Poway, CA 92064
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 of 95
Reviewed By:

Alan Fenstermacher
City Attorney City Manager
PROP 218 WATER PROTEST LOG
2025-2026
Count
Date
Received Last Name First Name Address No.

Street Name
(AVE, CT, DR, LN, PL, RD, ST, TRL, WAY) Comments
1 12/1/2025 Belaso Jay 14445 Twin Peaks Rd C. Charlotte & Jay C. 2 12/2/2025 Nalven Joseph 14738 Shadowbrook Ct
3 12/2/2025 Houck Jennifer 13196 Woodmont St
12/2/2025 Houck Mike 13196 Woodmont St Invalid - Duplicate Address #3 4 12/8/2025 Kessel Rosemary 12320 Buckskin Trl
5 12/8/2025 Pilgeram Summer 17632 Tam O Shanter Dr
6 12/8/2025 Rice Grace 14609 Jeff Park Ln
7 12/8/2025 Szawielenko Meghan 14802 Morningside Dr
12/8/2025 Szawielenko Aaron 14802 Morningside Dr Invalid - Duplicate Address #7 8 12/8/2025 Parks Gregory 17403 Tam O Shanter Dr
9 12/8/2025 Pearce Evangeline 14625 Fairburn St
10 12/8/2025 Spooner Brian 13139 Wanesta Dr
11 12/8/2025 Quaglietta Anthony 14747 Fairtree Ter
12 12/8/2025 Miller Kathryn 13409 Midland Rd 317-130-44-00 - 13409 Midland Rd #83 12/8/2025 Miller Kate 13409 Midland Rd Invalid - Duplicate Address #12 13 12/8/2025 Krafton Margarita 12610 Roberto Way
14 12/8/2025 Iniguez Al 13269 Highlands Ranch Rd
15 12/9/2025 Cesolini Brian & Denise 12943 Solera Way
16 12/11/2025 Boyce Jennifer 12704 Coachman Ct
17 12/11/2025 Celis Alison 14705 Carlson St
18 12/15/2025 Cheves Christopher 13026 Edina Way
12/15/2025 Cheves Karen 13026 Edina Way Invalid - Duplicate Address #18 19 12/17/2025 Dillard William & Ivy 15232 Amso St
20 12/17/2025 Workman-Laguda Vicki 14242 Match Point Dr 21 12/17/2025 Rowean Donald 13540 Cloudcroft Ct
12/17/2025 Rowean Patricia 13540 Cloudcroft Ct Invalid - Duplicate Address #21 22 12/17/2025 Kozlowski Colleen 14239 Silver Ridge Rd
23 12/23/2025 Hillius Sharna 14918 La Manda Dr
24 12/29/2025 Moorleghem David 17728 Saint Andrews Dr
25 12/29/2025 Nunn Donald 14682 Twin Peaks Pl APN: 321-230-530-00: 14682 Twin Peaks Pl 26 12/29/2025 Lester Catherine 13412 Olive Tree Ln APN: 323-190-52-00: 13412 Olive Tree Ln 27 12/29/2025 Lee Parker 14021 Earie Ln
28 1/5/2026 Walder Bob 15335 Poway Springs Ct APN: 314-641-06-00 29 1/5/2026 Ferguson Gisbert Karen 13967 Poway Valley Rd 1/7/2026 Bunner Jim 13660 Holly Oak Way Invalid - Received via email. Email is not an official rate protest mechanism. 30 1/9/2026 Raub Barbara & Gary 13108 Tawny Way
33 of 33
January 20, 2026, Item #4

ATTACHMENT E

Poway City CouncilJanuary 20, 2026

Poway City Council
January 20, 2026