CITY COUNCIL REGULAR MEETING AGENDA PACKET

9 CITY OF PLEASANTON Methodology Overview A connection fee is a one-time charge paid by a newly connecting water or wastewater system customer for the cost of backbone facilities necessary to provide water system capacity to that new customer. New customers are directly impacted when the City requires them to mitigate the costs of backbone facilities. If the impacts are cumulative over time, then the impact is indirectly addressed by the payment of connection fees. Backbone facilities are built in advance with the capacity needed for new customers, and as customers connect and use this capacity, they are expected to pay their fair share of those costs. Revenues generated by this charge are used to pay for growth- related water and wastewater facilities. Backbone facilities refer to those components of the system that are necessary to provide service to all customers. Water backbone facilities include sources of supply, treatment, pumping, major water transmission lines, and daily storage; and wastewater backbone facilities include conveyance, pumping, and treatment. A connection fee may be developed as a single charge for the entire backbone system or as individual charges for each backbone component. The City has historically calculated the capacity fee as a single charge, which is the most common approach across California. The City’s water connection fees have historically been charged by meter size. The City’s wastewater connection fees have historically been charged by a unit factor, which differs by customer class. Residential customers are charged per dwelling unit, while non-residential customers are charged per square foot with some exceptions, such as accessory dwelling units (ADUs), which are charged per square foot, and churches and hotels/motels, which are charged per seat and per room, respectively. Under specific conditions, the City Building Official has the discretion to adjust a connection fee based on historical water usage, among other factors. Connection Fee Methodologies The method for calculating connection fees generally utilizes one of the following three approaches: Buy-In, Incremental, or Hybrid. The Buy-In approach is designed to recover the historical costs of plant investment in proportion to the amount of built capacity, some of which is available for new growth. The Incremental approach is designed to recover the costs of future growth-related projects and the additional capacity those projects will yield. The Hybrid approach combines aspects of the buy-in and incremental approaches. It is appropriate where some remaining capacity is available in the existing system and new future facilities are required for development. BUY-IN METHOD The “Buy-In Method” is backward-looking and based on the premise that new customers are entitled to service at the same cost as existing customers. Under this approach, new customers pay only an amount equal to the current system value, either using the original cost or replacement cost as the valuation basis and either deducting the value of depreciation or not. This net investment, or value of the system, is then divided by the current system capacity to determine the Buy-In cost per unit. For example, if the existing system has 100 units of equivalent 3/4" meters and the new connector uses a 3/4" meter, then the new customer would pay 1/100 of the total value of the existing system. The new connector has “bought in” to the existing system by contributing this connection fee. The new user has effectively acquired a financial position on par with existing customers and will face future capital re-investment on an equal financial footing with those customers. This approach is suitable when: (1) an agency has built most or all of its facilities and only a small, or no, portion of future facilities are required for additional development, (2) an agency does not have a detailed adopted long-term capital improvement plan, or (3) an agency’s “build-out” date is so far out in the future that it is Page 156 of 893