ITEM 24 ATTACHMENT 2 - Laserfiche WebLink

City of Pleasanton 2025 Water Rate Study Water Resources Economics 97 7. WATER CONNECTION FEES 7.1 CONNECTION FEE OVERVIEW New customer connections to the City’s water system are subject to a water connection fee, which is necessary to ensure that existing users are not unfairly burdened by costs incurred to provide capacity for new users. The overall purpose of a connection fee is to equitably recover capital costs incurred by the agency to provide system capacity to new users. Water connection fees in California are typically developed based on one of three common methodologies outlined by the AWWA in its M1 Manual. The three methodologies include: 1. Buy-In Method: The Buy-In Method establishes connection based on the value of the system’s existing capital assets and is typically most appropriate when a system’s current capacity is sufficient to serve both short-term and long-term projected demands. The rationale underlying the Buy-In Method is that new customers should pay to “buy-in” to existing system capacity funded by past and current users. 2. Incremental Cost Method: The Incremental Cost Method establishes connection fees based on the cost of planned capital expenditures required to expand system capacity and is typically most appropriate when a system’s current capacity is already fully utilized by existing users. The rationale underlying the Incremental Cost Method is that new users should fund planned capital projects that are necessary to accommodate growth. 3. Hybrid Method: The Hybrid Method 23 establishes capacity charges based on a combination of the Buy-In Method and the Incremental Cost Method. The Hybrid Method is typically most appropriate when some existing capacity is available to new users, but capacity expansion is still necessary to accommodate long-term demands. WRE recommends the Hybrid Method for the City’s water connection fees. The existing system has some remaining capacity to serve new customers, and the City will be investing in additional capacity over the next several years. 7.2 BUY-IN COMPONENT The Buy-In component, shown in Table 7-1, calculates the value of the existing water system and its remaining capacity. The existing system value is determined based on the value of fixed assets (Line 1), cash balances (Line 2), and subtracting outstanding debt principal (Line 3). The fixed asset value is based on data received from City staff regarding water system assets, original cost, accumulated depreciation, acquisition date, and net book value. WRE converted all asset values from original cost into replacement cost less depreciation (RCLD) using the Construction Cost Index (CCI) to adjust for annual cost inflation. WRE recommends using the RCLD asset valuation methodology because it accounts for both inflation and depreciation and is often considered the most equitable approach. The detailed asset list is included in the Appendix (Table 8-6). 23 The Hybrid Method is referred to by the AWWA as the “Combined Cost Approach.”