CITY COUNCIL REGULAR MEETING AGENDA PACKET 7-21-26

City of Pleasanton Sewer Rate Study Report Water Resources Economics 41 3. COST-OF-SERVICE ANALYSIS AND SEWER RATES 3.1 COST-OF-SERVICE AND RATE OVERVIEW COST-OF-SERVICE AND RATES METHODOLOGY A cost-of-service analysis is a technical process used to determine the cost of providing sewer service to the City’s customers based on each customer’s use of and burden on the sewer system. The cost-of-service analysis is the basis of the nexus between the costs incurred by the utility to provide sewer service and the sewer rates charged to customers, which is a requirement of Proposition 218. The overall goal of the cost-of-service analysis is to develop “unit costs,” which provide the basis from which proposed rates are directly calculated. Note that although the study period spans multiple years, the cost-of-service analysis is limited to a single representative year referred to as the “test year.” The test year in this study is FY 2027. The proposed sewer rate schedule was developed based on the results of the proposed financial plan and cost-of-service analysis. The key steps in conducting a cost-of-service analysis and developing the proposed rate schedule are outlined below: • Revenue requirement determination: The revenue requirement for the test year is determined based on the results of the proposed financial plan and allocated to each customer class based on wastewater flow estimates. • Unit cost development: Allocated revenue requirements are divided by the appropriate units of service for each customer class to establish unit costs for the test year (FY 2027). Unit costs represent proposed rates for the first year of rates (FY 2027). Although total rate revenues in the first year of adjustments (FY 2027) are designed to increase by the proposed revenue adjustment percentage (100% in FY 2027), the proposed percentage increase to each rate/charge varies due to the updated cost-of-service allocations. • Rate schedule development: Proposed rates for the full study period are calculated by increasing the FY 2027 rates by the proposed annual revenue adjustment percentages from the proposed financial plan. PROPOSED CHANGES TO RATE STRUCTURE Currently, the City charges different bi-monthly fixed residential charges to Condo and Multi- Family customers. WRE recommends aligning the Condo and Multi-Family bi-monthly fixed charges to simplify the City's rate structure and better align with peer agency practices, including DSRSD. Because Condo and Multi-Family customers have similar household densities and estimated wastewater generation characteristics, combining these customer classes into a single rate is appropriate. Page 193 of 923