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City of Pleasanton Water Rate Study Executive Summary 8. Cost service allocations. Costs to be recovered from each class were allocated in two ways. Each class was allocated its proportionate share of the cost of Zone 7 water based on total annual water demand. All other costs were allocated in proportion to peak bi- monthly demand. 9. Resulting cost of service. The resulting average cost for serving each class increased as shown in Figure ES 1. This figure indicates what the average increase in cost will be to customers in each class, namely 24.3% for residential, 32.5% for commercial, and 30.7% for irrigation. These increases will generate 27% more in revenue from consumption charges, which will enable the City to achieve an overall 21% increase in rate revenue in FY 2010 -11. The rate design derived consumption charges effective August 1, 2010 that would generate the revenue allocated to each class. Certain structural modifications were made to achieve the City's rate making objectives. 10. Price signal. Because of the rapidly increasing cost of Zone 7 purchased water, the City should refine its conservation price signal to encourage efficiency and reduce costs. The price signal is most effectively targeted at single family residential (SFR) customers, where outdoor water use needs to be as efficient as possible. 11. Service charge structure. The City decided to leave the service charges unchanged when consumption charges are increased effective August 1, 2010. Service charges will be increased across the -board by the same percentage increase as the consumption charges effective January 1, 2011 and thereafter. 12. Residential consumption charge structure. The City determined that adding a fourth tier to the SFR consumption charges and re- aligning the breakpoints between tiers would further reward low -use customers and shift the burden of excessive use to high -use customers. 13. Revised consumption charges. The current and recommended consumption charges are summarized in Figure ES 2. 14. Customer impacts. In general, customers that use below average amounts will experience below- average percentage increases in their bills. Conversely, the percentage increases will be above average for above average use. 15. Future rate increases. Subsequent increases in both quantity and service charges for the next five years will be made effective each January 1. The magnitude of the increases will track inflation rates for the City's local costs and the annual increases in Zone 7 water purchases. IMPLEMENTATION The City plans to increase its revised consumption charges effective August 1, 2010 and then will increase both service and consumption charges on January 1 thereafter. After increasing rates effective January 1, 2011, the City should monitor its rates before March 18, 2010 Page 2 HF &H Consultants, LLC