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The second step in determining the revenue requirement for the City was to decide on the basis of accumulating costs. For this particular study, the "cash basis" approach was utilized. The "cash basis" approach is the most commonly used methodology by public utilities to set its revenue requirement. This is also the methodology that the City has used in the past to establish its sewer revenue requirement and closely follows the budgeting process. In developing the actual revenue requirement for the City, this approach has been "customized" to follow the City's system of accounts (budget/accounting documents). However, in general, even with these modifications, the City's revenue requirement still contains the four basic cost components of a "cash basis" methodology. Table 1-1 provides a detailed summary of the "cash basis" approach used to develop the sewer revenue requirement for the City. Table 1 -1 Overview of Pleasanton's Local Sewer Utility "Cash Basis" Revenue Requirement Operation and Maintenance Expenses Sewer Planning Sanitary Sewer O &M Utility Taxes /Transfer Payments Net Capital Improvements Funded From Rates [I] Debt Service (P -EI) Existing and Future (Net of Applied Connection Fees) Total Local Sewer Revenue Requirements [11 Net Capital Improvements Funded From Rates Total Local Sewer Capital Improvement Projects Funding Sources Other Than Rates Contributed Capital M &O Reserve Long -Term Debt Issuance Net Capital Improvements Funded From Rates Given a time period around which to develop the City's revenue requirement, and a method to accumulate those costs, the focus shifts to the development of the revenues and expenses for the utility, and ultimately to the development of the projected test period financial plan. The primary financial inputs in this process were the City's financial documents along with the revenue and expense projections developed by City staff. Provided below is a detailed discussion of the steps and key assumptions contained within the development of the City's revenue requirement analysis. Development of the Revenue Requirement 1-2 City of Pleasanton Local Sewer Rate Study