CITY COUNCIL WORKSHOP AGENDA PACKET 4-21-26

City of Pleasanton Sewer Rate Technical Memo Water Resources Economics Page 2 Following Council direction, City staff refined the timing of O&M expenses, CIP implementation, and associated debt issuances to better align with bond advisor requirements and anticipated financing constraints. These changes were made to improve the financial feasibility of the plan while maintaining the overall level of investment in the system. As a result, the timing of costs and debt issuance has been adjusted within the five-year planning period. However, total funding needs (additional rate revenue and proposed debt financing) remain unchanged. The objective of stabilizing system condition within the five-year planning period also remains unchanged. The updated financial plan represents a change in implementation timing, rather than a change in scope or level of service. COST-OF-SERVICE METHODOLOGY The cost-of-service analysis allocates the total costs of the City’s sewer collection system to customers based on their estimated contribution to wastewater flows. This approach is consistent with industry best practices and is intended to ensure that rates are proportional to the cost of providing service to each customer class. Residential Customers Residential wastewater flow is estimated using a combination of demographic and water usage characteristics. Specifically, average household size by unit type is derived from American Community Survey (ACS) data and applied to each Residential customer class. This information is combined with a City-specific indoor water usage assumption of 51 gallons per capita per day to estimate total Residential wastewater flow. Indoor water usage patterns are the primary driver of wastewater flows for Residential customers. Non-Residential Customers Non-Residential wastewater flow is estimated using actual water usage data for FY 2025, which provides a representative basis for evaluating customer demand patterns. To isolate indoor water use, which most closely corresponds to wastewater flow, a return factor is applied based on the ratio of average winter water usage to average annual usage for Non-Residential customers. Winter water usage is commonly used as a proxy for indoor demand because it excludes outdoor irrigation. This approach allows for a more accurate estimation of wastewater flows for Commercial/Industrial and Institutional customers. Cost Allocation Results Based on this methodology, total system costs are allocated to customer classes in proportion to their estimated wastewater flow contributions. The updated analysis reflects current usage patterns and results in a modest shift in cost responsibility from Residential and Institutional customers to Commercial/Industrial customers. This shift is primarily driven by updated water usage data and refined assumptions regarding estimated wastewater flow generation. The updated cost allocation aligns costs with sewer system usage for all customer classes. PROPOSED SEWER RATE STRUCTURE CHANGES The proposed sewer rate structure has been developed to align with cost-of-service principles while also simplifying the existing structure and improving consistency with peer agencies. The intent of these changes is to create a rate structure that is both equitable and easier for customers to understand. Key changes to the rate structure include: Page 12 of 27