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City of Pleasanton Water Drought Rates and Connection Fees Technical Memo Page 3 costs of drought, which includes variable revenue loss from reduced usage minus cost savings from reduced variable expenses. For drought rates to be implemented, the City would declare a water shortage emergency and elect to implement drought rates corresponding to the appropriate stage. Drought rates are one option for agencies during a water shortage emergency amongst other options to recover drought costs including using reserve funds, implementing a partial drought rate, deferring CIP expenditures, etc. Based on the City Council’s direction to move forward with full fixed charge recovery of Zone 7 fixed costs, proposed drought rates will be lower than current drought rates as less variable revenue is at risk during water shortage emergencies. Currently, the City has a drought usage allotment of 10 ccf per customer every bi-monthly billing period that is exempt from being charged drought rates. Based on updated consumption patterns, WRE recommends reducing the drought usage allotment to 8 ccf per bi-monthly billing period to ensure that the total annual usage allotment remains below the annual usage reduction requirement for each stage of drought rates. The City is seeking input on whether this drought allotment policy should be continued. The benefits and challenges of each option will be evaluated in addition to rate impacts for different levels of water usage: • Option 1: Maintain the drought allotment policy (update allotment from 10 ccf to 8 ccf) • Option 2: Remove the drought allotment policy PROPOSED DROUGHT RATES AND IMPACTS Two drought rate scenarios will be evaluated below based on the benefits and challenges associated with each in addition to customer impacts. Option 1: Maintain the drought allotment policy (update allotment from 10 ccf to 8 ccf) • Benefits: Benefits lower end users by accounting for lower users’ lower ability to reduce usage during water shortage emergencies compared to higher end users • Challenges: Increases unit drought rate for all usage over 8 ccf The table below shows the proposed drought rates with an 8 ccf allotment per bi-monthly billing period for all customers relative to current drought rates with a 10 ccf allotment. Drought Rates Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Usage Reduction 10%20%30%40%50%60% Current Drought Rates (10 ccf allotment) Single Family Tier 1 $0.77 $1.92 $3.54 $6.34 $11.91 $17.90 Tier 2 $0.90 $2.24 $4.14 $7.40 $13.90 $20.90 Tier 3 $0.98 $2.43 $4.48 $8.01 $15.05 $22.61 Tier 4 $1.01 $2.52 $4.67 $8.36 $15.70 $23.60 Multi-Family $0.77 $1.91 $3.53 $6.32 $11.87 $17.82 Commercial $0.78 $1.96 $3.62 $6.46 $12.15 $18.26 Industrial $0.78 $1.96 $3.62 $6.46 $12.15 $18.26 Irrigation $0.90 $2.25 $4.16 $7.42 $13.95 $20.96 Proposed Drought Rates (8 ccf allotment) Year 1 $0.44 $1.02 $1.84 $3.08 $5.18 $9.54 Year 2 $0.51 $1.18 $2.12 $3.55 $5.96 $10.98 Year 3 $0.56 $1.28 $2.29 $3.84 $6.44 $11.86 Year 4 $0.61 $1.39 $2.48 $4.15 $6.96 $12.81 Page 200 of 226