CITY COUNCIL REGULA MEETING AGENDA PACKET _Revised_ 6-2-26

Page 5 of 15 Cost of Service Methodology The cost-of-service analysis allocates the City’s sewer collection costs among 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 that rates are proportional to the cost of providing service. This is the first time Pleasanton sewer rates have been comprehensively evaluated with a cost-of-service study designed to right-size and more equitably distribute costs across customer classes. For many years, the City relied on consumer price index (CPI)-based adjustments, which did not generate sufficient revenue to operate, maintain, and rehabilitate the sewer system. Estimated wastewater flows were developed as follows: • Residential Customers: Wastewater flow was estimated using average household size by unit type, based on American Community Survey data, and a City-specific indoor water use assumption of 51 gallons per capita per day. • Non-Residential Customers: Wastewater flow was estimated using FY 2025 water use data, which provides a representative basis for evaluating customer demand patterns. To better reflect indoor water use, which most closely correlated with sewer flows, a return factor was 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, allowing for a more accurate estimate of wastewater flow for commercial, industrial, and institutional customers. Cost Allocation Results Based on this methodology, total system costs were allocated to customer classes in proportion to their estimated wastewater flow contributions. Updated water use data and refined flow assumptions more accurately reflect current usage patterns. Overall, the updated allocation better aligns costs with sewer system use across customer classes and supports a cost-of-service-based rate structure. The analysis indicates that a portion of system costs and overall usage has shifted from residential and institutional customers to commercial and industrial customers. Such changes are typical over time and highlight the importance of periodically updating cost-of-service studies. Proposed Sewer Rate Structure Changes The proposed sewer rate structure is designed to align with cost-of-service principles, simplify the current structure, and improve consistency with peer agencies, making sewer bills easier for customers to understand. The proposed changes include: • Residential: Combine condominium and multifamily customers into a single rate category. • Commercial/Industrial: Establish a single uniform collection rate across all business Page 342 of 617