CITY COUNCIL WORKSHOP AGENDA PACKET 4-21-26

Page 4 of 9 Cost of Service Methodology The cost-of-service analysis allocates the City’s sewer collection costs to customer classes based on each class’s estimated contribution to wastewater flows. This approach is consistent with industry best practices and is intended to ensure rates are proportional to the cost of providing service. This is the first time that Pleasanton sewer rates have been comprehensively evaluated with a cost-of-service study designed to right-size and more equitably distribute costs across customer classifications. • Residential Customers: Wastewater flow is estimated using average household size by unit type (American Community Survey data), combined with a City-specific indoor water-use assumption of 51 gallons per capita per day. • Non-Residential Customers: Wastewater flow is estimated using FY 2025 water usage data, which provides a representative basis for evaluating customer demand patterns. To better reflect indoor water use (most closely correlated with sewer flows), a return factor is applied based on the ratio of average winter water use to average annual water use. Winter usage is commonly used as a proxy for indoor demand, as it generally excludes outdoor irrigation, enabling more accurate wastewater flow estimates for Commercial/Industrial and Institutional customers in line with industry best practices. Cost Allocation Results Based on this methodology, total system costs are allocated to customer classes in proportion to their estimated wastewater flow contributions. Updated water-use data and refined flow assumptions reflect current usage patterns. Overall, the updated cost allocation better aligns costs with sewer system usage across all customer classes, which is justified by the cost of services. Proposed Sewer Rate Structure Changes The proposed sewer rate structure aligns with cost-of-service principles, simplifies the current structure, and improves consistency with peer agencies. Key changes to the rate structure include: • Residential: Combine Condo and Multi-Family rates into a single rate category • Commercial/Industrial: Adopt a single uniform collection rate across all business classifications and include a minimum charge • Institutional (School): Continue differentiating submetered and non-submetered PUSD customer rates These updates simplify the sewer rate structure while retaining customer class differences where supported by measurable differences in water usage and wastewater flow characteristics. Ruby Hill Discount Consideration Ruby Hills customers currently receive a 10 percent reduction in sewer billing from both the Cities of Pleasanton and Livermore. The current reduction was approved by the City Council in 2017. Under current rules, including Proposition 218, continuing to offer this bill reduction would result in an approximate $31 thousand dollar impact on the General Fund. Staff Page 5 of 27