Cov txheej txheem txog qhia txog Proposition 218 txheej txheem rau cov kev hloov kho thiab nce tus nqi rau dej thiab dej khib nyab services 1. Qhia rau City staff pib Proposition 218 txheej txheem rau cov kev hloov kho thiab nce tus nqi rau dej thiab dej khib nyab services 2. Teeb ib lub rooj sib tham rau pej xeem txhawm rau xav txog cov kev hloov kho thiab nce tus nqi rau dej thiab dej khib nyab services nyob rau lub Kaum Ob Hlis 3, 2026, nyob rau 5:00 p.m.

REPORT TO THE CITY COUNCIL FROM: PAUL AMICO, PE, Director Department of Public Utilities SUBJECT ..Title Actions related to initiating the Proposition 218 process for proposed updates and increases to the schedule of rates for water and wastewater services Direct City staff to initiate the Proposition 218 process for proposed updates and increases to rates for water and wastewater services Set a public hearing to consider proposed updates and increases to rates for water and wastewater services on December 3, 2026, at 5:00 p.m. ..Body RECOMMENDATION The Department of Public Utilities (DPU) recommends that City Council direct DPU staff to initiate the Proposition 218 notice, protest, and hearing process for proposed updates and increases to the schedule of rates for water and wastewater services, and set a public hearing to consider the proposed updates and increases to the rates for water and wastewater services on December 3, 2026, at 5:00 p.m. at City Hall. EXECUTIVE SUMMARY The City of Fresno (City) last adopted a rate plan for water utility services in 2015, and a rate plan for wastewater utility services in 2007. The final rate adjustment under the 2015 water rate plan was implemented effective July 1, 2018, and the final rate adjustment under the 2007 wastewater rate plan was implemented effective September 1, 2010. DPU is proposing rate updates and increases for water and wastewater utility services to cover projected operating and maintenance cost increases, to fund capital improvements, and to realign and proportionately distribute costs across the different customer classes in each utility. If adopted by the City Council, the proposed five-year rate plans would become effective January 1, 2027, and the final rate adjustments would be effective on July 1, 2030. Routinely assessing and evaluating revenue and expenditure projections, specifically analyzing the rates charged for service, is vital to prevent revenue shortfalls that could lead to disruptions or cuts in service. DPU retained an independent rate consultant Pavletic Consulting, LLC (Pavletic Consulting) to evaluate the cost to provide water and wastewater utility services and develop five-year schedules of rates for water and wastewater services to cover the forecast of capital costs, operations and maintenance, and debt service obligations during the period covering Fiscal Year (FY) 2027 through FY 2031 (January 1, 2027, through June 30, 2031). After reviewing the rate plans and proposed schedules of rates as presented in the Notice of Public Hearing to consider Proposed Updates and Increases to Rates for Water and Wastewater Services (Notice) (Attachment 1), DPU recommends that City Council initiate the Proposition 218 process and begin the legally required process to implement the proposed rate updates and increases for water and wastewater utility services. It is important to note that the City cannot profit from rate increases, and the rates charged directly support the cost to deliver water and wastewater utility services. Additionally, while residents will see increases, City rates remain at or below neighboring municipalities such as Madera, Merced, and Visalia. DPU is also proposing to create an affordability program to assist eligible wastewater customers. The program will be funded with non-rate revenues and will mirror the existing affordability programs for water and solid waste, which assist low-income customers. The affordability program will be presented to City Council for its consideration with the proposed rate updates and increases in December 2026. To implement the proposed rates, the City must initiate a Proposition 218 (Section 6 of Article XIII-D of the California Constitution, “Proposition 218”) notice, protest, and hearing process consisting of a minimum 45-day public notice period followed by a public hearing. With the present item, DPU is requesting that City Council direct staff to begin the first step of the Proposition 218 process by mailing notices and protest cards related to the proposed residential water and wastewater rate updates and increases to affected property owners and customers. Affected property owners and customers may then submit written protests to the proposed rate updates and increases, either on the provided protest card or using some other written format that complies with the protest requirements. No less than 45-days after the Notices are mailed, staff anticipate returning to City Council on December 3, 2026, to conduct a public hearing, tabulate the valid protests received for each of the utilities’ rate plans, and consider the proposed rate updates and increases. After the close of the public hearing, if a majority protest is not achieved, City Council may adopt the proposed rate updates and increases for the utility or utilities that did not receive a majority protest. BACKGROUND DPU provides essential water and wastewater utility services to homes and businesses in the City and in certain Fresno County islands. DPU also provides residential solid waste services to City residents, performs litter control, and leads the Mayor’s Beautify Fresno program. The water, wastewater, and residential solid waste utility services are funded using monthly rates and charges to customers, and DPU sets rates and charges in accordance with the requirements of Proposition 218. DPU is requesting that City Council direct staff to begin the first step of the Proposition 218 process to update and increase rates for water and wastewater utility services. The water utility is responsible for delivering a reliable supply of high-quality and affordable water to more than 143,000 residential, commercial, and industrial customers across a 114-square-mile service area in Fresno and many county islands. The City’s water system consists of three surface water treatment facilities capable of producing up to 87 million gallons of water per day, 260 municipal production wells, and 304 acres of groundwater recharge facilities. The City maintains more than 1,900 miles of water distribution pipelines and over 20,700 isolation valves, three booster pump stations, and three water storage tanks. The wastewater utility is responsible for the collection, conveyance, treatment, and reclamation of wastewater generated by more than 141,000 residential, commercial, and industrial wastewater customers across a 114-square-mile service area in Fresno and many county islands. The City’s collection system includes approximately 1,600 miles of gravity sewers, nearly 26,000 manholes, 17 lift stations, 11 miles of associated force mains, and 58 junction structures/flow diversions that collect and convey wastewater to the Fresno-Clovis Regional Wastewater Reclamation Facility (RWRF). In addition, the RWRF is the seventh largest wastewater treatment facility in California and treats approximately 56 million gallons per day of wastewater and includes 1,750 acres of ponds for groundwater recharge. Through the efficient and innovative operation and maintenance of the wastewater treatment, reclamation and recycled water facilities, and the collection system infrastructure, the wastewater utility provides reliable services to customers, protecting public health while also meeting ecological needs. The City last adopted a rate plan for water utility services in 2015, and a rate plan for wastewater utility services in 2007. The final rate adjustment under the 2015 water rate plan was implemented effective July 1, 2018, and the final rate adjustment under the 2007 wastewater rate plan was implemented effective September 1, 2010. DPU is proposing rate updates and increases for water and wastewater services to fund increased costs for ongoing and expanded operating and maintenance activities, and increased capital investment in the water and wastewater facilities and pipelines that serve the community. Proposed Rates Routinely assessing and evaluating revenue and expenditure projections and specifically analyzing the rates charged for service is vital to prevent revenue shortfalls that could lead to disruptions or cuts in service. The City’s practice is to evaluate revenues and expenses annually during the budget process. Pavletic Consulting evaluated the cost to provide water and wastewater utility services and developed a five-year schedule of rates for water and wastewater services to cover the forecast of capital costs, operations and maintenance, and debt service obligations during the period covering Fiscal Year (FY) 2027 through FY 2031 (January 1, 2027, through June 30, 2031). If approved, an average single-family residential customer would see a monthly increase of $1.77 for water customers with a 1.0-inch water meter and a monthly decrease of $0.95 for wastewater customers beginning January 1, 2027. In developing a five-year schedule of rates, the City must comply with Proposition 218 by establishing rates that proportionately recover the actual costs associated with the level, quality, and quantity of service delivered to each water and wastewater customer class. Accordingly, the City’s proposed five-year schedule of rates is based on common and well-established cost of service principles that ensure that users of the utility service pay rates that are directly proportionate to the level, quality, and quantity of services they receive. Proposed Updates and Increases to the Schedule of Rates for Water Utility Services DPU is proposing a rate update and increase for water utility services to fund increasing costs for ongoing operating and maintenance activities, increased capital investment in the facilities and pipelines that treat and distribute potable water to the community, and to fund additional contributions to the operating reserve to fund costs for emergencies or unforeseen expenses. Capital investments include water distribution pipeline replacement, groundwater production well renewal and replacement, surface water treatment plant equipment replacement, groundwater recharge facility improvement, master planning studies for water infrastructure renewal and replacement and potential system expansion. The City’s operating and maintenance expenses and capital improvement costs that are planned to be funded by the proposed rates are described in Attachment 2: Water Utility Financial Plan and Rates Study FY 2027 – FY 2031 (2027 Water Report). Operating and Maintenance Expenses: In addition to ongoing operations and maintenance costs, the water utility service rate updates and increases are proposed to fund the following additional expenses: Eleven new positions in FY 2028 to address increasing needs related to ongoing operation and maintenance of large water meters, oversight of regulatory-required water quality testing and monitoring, oversight and inspection of backflow prevention devices for cross-connection control, operation and maintenance of automated controls systems, support for asset and work order system data management and analysis, and the addition of one certified water manager to manage the water meter shop and conservation program. Twelve new positions in FY 2029 to address increasing needs related to water system valve operation and maintenance, water system equipment and parts warehouse support, cross-connection control and backflow prevention inspection, operation and maintenance of instrumentation at the surface water treatment facilities, electrical system operation and maintenance at the surface water treatment facilities, contract management support for surface water treatment facility materials, equipment, and chemicals, and additional support for commercial and industrial customer water conservation. Water purchases for the surface water treatment facilities and groundwater recharge. Increased costs for power and treatment chemicals. Water Capital Improvement Program: Between FY 2027 and FY 2031 (five fiscal years), total projected Capital Improvement Plan (CIP) expenditures, funded by all funding sources, are approximately $497.2 million. The total planned capital expenditures, by project category, are summarized below: Water Main Renewal = $138 million (28 percent) Water Main Extension = $20 million (4 percent) Water Well and Pump Rehabilitation = $29 million (6 percent) Water Well Construction = $236 million (47 percent) Water Telemetry System = $19 million (4 percent) Surface Water Treatment Plant = $42 million (8 percent) Recharge and Leaky Acres = $8 million (2 percent) Planning and Project Management = $3 million (less than 1 percent) All other = $6 million (1 percent) The Rate Funded Water Capital Improvement Plan (CIP) between FY 2027 and FY 2031 accounts for $245.6 million of the total water CIP, consisting of cash financing of capital improvements (Pay-As-You-Go) from the Water Enterprise Fund and a $50 million revenue bond in FY 2030. The planned rate funded expenditures, by project category, are summarized below: Water Main Renewal = $124 million (51 percent) Water Main Extension = $3 million (1 percent) Water Well and Pump Rehabilitation = $29 million (12 percent) Water Well Construction = $32 million (13 percent) Water Telemetry System = $19 million (8 percent) Surface Water Treatment Plant = $29 million (12 percent) Recharge and Leaky Acres = $2 million (less than 1 percent) Planning and Project Management = $3 million (1 percent) All Other = $6 million (2 percent) The proposed schedule of water rates developed by the water utility for the Proposition 218 process is presented in Attachment 2 and in the table below. The proposed changes to the water rates are necessary to fund these increased costs of service. The water rate structure will remain a uniform quantity charge with a fixed monthly meter service charge. Proposed 5-Year Rates for Water Utilities Services Item FY27 FY28 FY29 FY30 FY31 Water Quantity Charges, $/HCF Potable Water Meters $1.85 $1.96 $2.06 $2.16 $2.26 Private Wells $0.33 $0.34 $0.35 $0.36 $0.37 Meter Charges, $/month – Domestic ¾-inch $13.60 $14.25 $14.95 $15.65 $16.35 1.0-inch $17.80 $18.65 $19.50 $20.40 $21.35 1.5-inch $28.90 $30.30 $31.70 $33.20 $34.75 2.0-inch $34.45 $36.10 $37.80 $39.60 $41.40 3.0-inch $55.30 $57.95 $60.65 $63.50 $66.50 4.0-inch $104.00 $109.00 $115.00 $120.00 $125.00 6.0-inch $174.00 $182.00 $191.00 $200.00 $209.00 8.0-inch $680.00 $710.00 $740.00 $780.00 $810.00 10.0-inch $1,540.00 $1,610.00 $1,690.00 $1,770.00 $1,850.00 Meter Charges, $/month – Irrigation ¾-inch $10.85 $11.40 $11.90 $12.45 $13.05 1.0-inch $13.35 $14.00 $14.65 $15.35 $16.05 1.5-inch $20.10 $21.05 $22.00 $23.05 $24.10 2.0-inch $23.45 $24.55 $25.70 $26.90 $28.15 3.0-inch $36.00 $37.70 $39.45 $41.35 $43.25 4.0-inch $65.30 $68.40 $71.65 $75.00 $78.50 6.0-inch $108.00 $113.00 $118.00 $124.00 $129.00 8.0-inch $410.00 $430.00 $450.00 $470.00 $500.00 10.0-inch $930.00 $980.00 $1,020.00 $1,070.00 $1,120.00 Private Fire Protection Charges, $/month 1.0-inch $8.25 $8.65 $9.10 $9.55 $10.00 1.5-inch $8.25 $8.65 $9.10 $9.55 $10.00 2.0-inch $8.25 $8.65 $9.10 $9.55 $10.00 3.0-inch $8.25 $8.65 $9.10 $9.55 $10.00 4.0-inch $8.25 $8.65 $9.10 $9.55 $10.00 6.0-inch $23.95 $25.15 $26.40 $27.70 $29.05 8.0-inch $51.10 $53.60 $56.25 $59.00 $61.85 10.0-inch $91.85 $96.40 $101.15 $106.10 $111.25 12.0-inch $148.40 $155.75 $163.35 $171.35 $179.70 Proposed Updates and Increases to the Schedule of Rates for Wastewater Utility Services The City’s costs for operating and maintaining the wastewater system have increased, including costs for staffing, energy, treatment chemicals, regulatory compliance, debt service, and the rehabilitation and replacement of aging treatment and collection-system infrastructure. The City must ensure all the costs associated with collecting and treating wastewater are proportionately distributed across all customer classes, including residential, commercial, and industrial customers in its service area. This requires rate adjustments to be made to realign wastewater rates with costs of service through this rate adjustment and adoption process. The proposed wastewater rates will fund increased costs for ongoing and expanded operating and maintenance activities, needed improvements at the RWRF and in the sewer collection system, and additional contributions to the operating reserve to fund costs for emergencies or unforeseen expenses. The proposed rate changes for FY 2027 do not increase the total revenue generated but instead adjust cost allocations amongst customer classes based on their current use of the wastewater system. This will ensure that each customer class pays its proportionate share. Through the cost-of-service analysis performed as part of the Wastewater Utility Financial Plan and Rates Study FY 2027 – FY 2031 (2027 Wastewater Report), the City determined that the wastewater rate structure must be realigned to proportionately allocate costs of service to each customer class in compliance with Proposition 218 and other applicable state law. As such, rate updates will affect each wastewater customer class differently. For example, the impact on Single Family and Multiple Family 1st Units accounts is a decrease in the monthly rate, while Multiple Family Each Additional Unit accounts will receive a nine percent increase. Similar to the residential customer classes, the impact of the FY 2027 cost allocation adjustment on commercial and industrial rates varies depending on the waste discharge flow and concentration of Biochemical Oxygen Demand (BOD) and Total Suspended Solids (TSS). Additionally, the Senior Citizen category was eliminated in order to ensure that the rates for each customer class recover the actual costs associated with the level, quality, and quantity of service delivered to users of the system. To compensate for this change, eligible Senior Citizen customers will be able to participate in an expanded affordability credit program, should it be approved by City Council when the wastewater rate updates and increases are considered. The affordability credit programs are discussed in further detail below. The City’s operating and maintenance expenses and capital improvement costs that are planned to be funded by the proposed rates and the cost-of-service adjustment to the proposed rates are described in Attachment 3: Wastewater Utility Financial Plan and Rates Study FY 2027 – FY 2031. Operating and Maintenance Expenses: In addition to ongoing operations and maintenance expenses, the wastewater utility service rate updates and increases are proposed to fund the following: Four new positions in FY 2028 to address increasing needs related to sewer collection system inspection and maintenance, enhancing preventive maintenance practices and activities at the RWRF, and performing additional accounting activities. Ten new positions in FY 2029 to address increasing needs related to large diameter trunk sewer line cleaning and inspection, establish a Renewable Natural Gas (RNG) treatment facility operations and maintenance crew, and expand mechanical maintenance capacity at the RWRF. Increased costs for power and chemicals for wastewater treatment. Wastewater Capital Improvement Program: Between FY 2027 and FY 2031 (five fiscal years), total projected CIP expenditures, funded by all funding sources, are approximately $513.0 million. The total planned capital expenditures, by project category, are summarized below: Collection System Rehabilitation = $111 million (22 percent) Collection System Large Diameter Trunk Lines = $156 million (30 percent) Collection System Extension = $7 million (1 percent) RWRF Projects = $154 million (30 percent) Renewable Gas Diversion = $14 million (3 percent) NFWRF Projects = $6 million (1 percent) Planning & Project Management = $12 million (2 percent) Public Utilities Administration = $2 million (less than 1 percent) Sidestream Treatment (State Revolving Fund Loan) = $50 million (10 percent) The Rate Funded Wastewater Capital Improvement Plan (CIP) between FY 2027 and FY 2031 accounts for $460.6 million of the total water CIP, consisting of cash financing of capital improvements (Pay-As-You-Go) from the Wastewater Operating Fund and two $100 million bonds in FY 2028 and FY2030. The planned rate funded expenditures, by project category, are summarized below: Collection System Rehabilitation = $111 million (24 percent) Collection System Large Diameter Trunk Lines = $156 million (34 percent) Collection System Extension = $5 million (1 percent) RWRF Projects = $154 million (33 percent) Renewable Gas Diversion = $14 million (3 percent) NFWRF Projects = $6 million (1 percent) Planning & Project Management = $12 million (3 percent) Public Utilities Administration = $2 million (less than 1 percent) The proposed rate changes are needed to maintain the current level of utility service and to maintain its infrastructure. The proposed schedule of wastewater rates developed by the wastewater utility for the Proposition 218 process is presented in Attachment 3 and the table below. Proposed 5-Year Rates for Wastewater Utilities Services Customer Class FY27 FY28 FY29 FY30 FY31 Residential, $ per month Single Family $24.80 $26.30 $27.85 $29.50 $31.30 Multiple Family Dwelling Unit $18.80 $19.90 $21.10 $22.35 $23.65 COMMERCIAL –Potable Water, $/HCF High: BOD or TSS >= 501 mg/L $4.20 $4.46 $4.72 $5.00 $5.31 Med: BOD or TSS 201-500 mg/L $2.46 $2.61 $2.77 $2.93 $3.11 Low: BOD or TSS 0-200 mg/L $1.44 $1.53 $1.62 $1.71 $1.82 –Sewage Effluent, $/HCF High: BOD or TSS >= 501 mg/L $4.83 $5.12 $5.43 $5.75 $6.11 Med: BOD or TSS 201-500 mg/L $2.86 $3.03 $3.22 $3.41 $3.62 Low: BOD or TSS 0-200 mg/L $2.06 $2.18 $2.31 $2.45 $2.60 All Users, $/month (per account) $3.45 $3.65 $3.85 $4.10 $4.30 INDUSTRIAL, HIGH * –High Potable Water Volume, $/HCF $1.448 $1.534 $1.626 $1.722 $1.826 **BOD, $/pound $0.295 $0.313 $0.332 $0.352 $0.374 **TSS, $/pound $0.350 $0.371 $0.393 $0.416 $0.442 –High Sewage Effluent Volume, $/HCF $1.448 $1.534 $1.626 $1.722 $1.826 BOD, $/pound $0.295 $0.313 $0.332 $0.352 $0.374 TSS, $/pound $0.350 $0.371 $0.393 $0.416 $0.442 All Users, $/month (per account) $3.45 $3.65 $3.85 $4.10 $4.30 INDUSTRIAL LOW, BOD or TSS 0-200 mg/L $/HCF Potable Water $1.44 $1.53 $1.62 $1.71 $1.82 Sewage Effluent $2.06 $2.18 $2.31 $2.45 $2.60 All Users, $/month (per account) $3.45 $3.65 $3.85 $4.10 $4.30 SCHOOLS (ADA), $/ADA/year Kindergarten/ Elementary $9.85 $10.45 $11.05 $11.70 $12.45 Middle $19.60 $20.75 $22.00 $23.30 $24.75 Senior/High $19.60 $20.75 $22.00 $23.30 $24.75 Parochial $19.60 $20.75 $22.00 $23.30 $24.75 College $19.60 $20.75 $22.00 $23.30 $24.75 All Users, $/month (per account/unit) $3.45 $3.65 $3.85 $4.10 $4.30 Utility Services Affordability Credit Programs The affordability credit program receives an annual budget of $1 million in funding using revenues derived from delinquency fees, in accordance with Proposition 218, which prohibits the use of rate revenues for this purpose. Account holders are required to reapply each year to participate in the affordability credit program, only one application is needed for the credit to be applied to all utility services received by that customer. To qualify for the affordability credits, an account holder is required to submit documentation to Utilities Billing & Collections (UB&C) that they qualify for PG&E’s California Alternate Rates for Energy (CARE) Program or one of Fresno County’s human services programs, such as the Supplemental Nutrition Assistance Program (SNAP), the Women, Infants, and Children (WIC) Program, the National School Lunch Program (NSLP), or the Medi-Cal Program. Account holders need to apply for the affordability credit on an annual basis, and the credits are issued on a first-come, first-served basis to qualified applicants. The City currently offers a Water Affordability Credit Program (WACP) that provides financial assistance to eligible account holders based on demonstrated financial need. The current water credit is $5 per month with a maximum of $60 in a 12-month period. 3,814 customer account holders are currently participating in the WACP. There is also a $5 per month affordability credit for residential solid waste utility service customers. The City does not currently offer an affordability credit for wastewater utility customers. The affordability credit program for qualified low-income wastewater utility account holders is currently being developed and will be presented to City Council for consideration in a separate action at the wastewater rate update and increase public hearing. The proposed value of the affordability credit for a qualified account holder has not yet been finalized. The proposed value will be determined in part on the availability of non-ratepayer funding to support the program and the anticipated level of customer participation. Eligibility requirements are proposed to be the same as the Water and Solid Waste Affordability Programs. While the Senior Citizen rate will be eliminated, those customers may be eligible for the wastewater affordability credit program. Proposition 218 Schedule Proposition 218 sets forth procedural requirements the City must follow before adopting new water and wastewater rates. One of those requirements is that the City must provide a special form of mailed notice to record property owners and customers of record regarding the proposed rate increases at least 45 days prior to a public hearing on the matter. Notices will be ADA accessible and made available in multiple languages. If a majority of parcels receiving residential water or wastewater services submit valid written protests before the close of the public hearing, Proposition 218 prohibits the City from implementing the proposed rate updates for the utility receiving a majority protest. If less than a majority of parcels protest the proposed rate increases, the City Council may consider approval of the rate updates for the utility or utilities that did not receive a majority protest. To ensure that the 2027 water and wastewater rate plans are successfully implemented as proposed in FY 2027, DPU has developed the Proposition 218 schedule provided below. Conducting the Proposition 218 hearing process within this timeframe is essential to allow time to program the billing software system with the new rates, establish the Wastewater Affordability Credit Program, and conduct outreach to the community ahead of the January 1, 2027, effective date. Most importantly, it allows customers time to be fully prepared for the new residential water and wastewater rates prior to implementation. The anticipated Proposition 218 process schedule is as follows: Milestone Date Council Directs Staff to Initiate Proposition 218 process October 8, 2026 Proposition 218 Notices mailed No later than October 19, 2026 City Council conducts Proposition 218 public hearing & considers adoption of new five-year rate schedules† December 3, 2026 Begin billing of new rates January 1, 2027 † - Consideration for adoption would only occur for the utility or utilities that did not receive a majority protest. ENVIRONMENTAL FINDINGS The initiation of a Proposition 218 process is not a “project” for the purposes of the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines §15273. LOCAL PREFERENCE Local preference was not implemented as this action does not include a bid or award of a construction or services contract. FISCAL IMPACT There is no impact to the General Fund. Fiscal impacts to the Water and Wastewater Enterprise Funds are addressed within the Water and Wastewater Management Utility’s Financial Plan and Rates Studies FY 2027 – FY 2031. Attachments: Notice of Public Hearing Proposed Updates & Increases to Rates for Water and Wastewater Services Water Utility Financial Plan and Rates Study FY 2027 – FY 2031 Wastewater Utility Financial Plan and Rates Study FY 2027 – FY 2031