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City of Pleasanton Water Rate Study 1. Introduction 1. INTRODUCTION The report is organized to explain the three analytical steps of the analysis. First, revenue requirements are determined for FY 2010 -11. Rates need to be designed to generate the required revenue. Second, the cost -of- service analysis determines how much of the revenue requirement should be paid by each customer class. Finally, the rates need to be designed for each customer class. 1.1. CURRENT RATES The City's rate payers pay the sum of two charges for water service on a bi- monthly basis: a fixed service charge based on the size of the service connection plus a consumption charge based on metered water use during the billing period. The rates are summarized in Figure 1 -1. The service charges for the same type of supply (i.e., potable water supply) are the same regardless of customer class. In other words, the charge for a meter of a given size is the same for all meters of that size for a given type of supply regardless of which class of customer is served. This is a legal requirement, as well as a rate making practice. Consumption charges can vary depending on the customer class. In the City's case, the residential class currently comprises single family and multi- family customers. Residential customers pay tiered consumption charges also referred to as "increasing block rates." Residential customers pay rates for each range of consumption (tier or block); the rate in each tier increases as consumption increases. The total consumption charge is the sum of the consumption in each tier multiplied times the respective rate in each tier. The current residential increasing block rates comprise three tiers. For non- residential customers, the consumption charges are uniform charges per unit of consumption with the exception of irrigation customers, which pay seasonal consumption charges. Under seasonal rates, the higher rate is paid during the summer when irrigation places the greatest demand on the system. During the non irrigation season, the price decreases when peaking is lowest. 1.2. RATE- MAKING OBJECTIVES The City has several rate making objectives that the rates are designed to achieve: Revenue sufficiency Rates need to be sufficient to fund operating and capital costs and maintain adequate reserves. March 18, 2010 Page 5 HF &H Consultants, LLC