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Figure ES -1 Overview of the Comprehensive Rate Study Compares the sources of funds (revenues) to Revenue Requirement Analysis the expenses of the utility to determine the overall rate adjustment 4 Allocates the revenue requirements to the Cost of Service Analysis various customer classes ofsetvice in a fair and equitable" manner 4 Considers both the level and structure of the Rate Design Analysis rate design to collect the target level of revenues The revenue requirement analysis and the rate design analysis were conducted as part of this study. At this time a cost of service analysis was not completed for the City. The development of cost based rates can be accomplished through a review of the revenue requirement and rate design analyses. Summary of the Revenue Requirement Analysis The development of the revenue requirement is the first analytical step in the rate study process. A revenue requirement analysis determines the overall adequacy of the City's local sewer rates. In developing the local sewer revenue requirement, it was assumed that the utility must financially "stand on its own" and be properly and adequately funded. The initial step in calculating the revenue requirement was to establish a "test period or time frame of reference for the revenue requirement analysis. For this particular study, the revenue requirement was developed for the eight -year projected time period of FY 2010 FY 2017. In projecting the revenues and operating expenses for the utility, the primary inputs to the analysis were the City's financial documents and the revenue and expenses as developed by City staff. The City has a significant level of capital improvement projects planned over the study's time horizon. More importantly, in looking beyond the next eight years, the number and size of the replacement sewer projects is anticipated to ramp up significantly. The City and its engineering consultant are in the process of updating the Water and Wastewater Asset Management Study, which includes an analysis of the local sewer collection and pumping system. The Asset Management Study was not completed at the time of this study, but it was in a draft form which allowed HDR to gain an understanding of the potential capital replacement expenditures over the next fifty to seventy -five years. The value of the Asset Management Study to this rate study is that it provided a road map of where the City should be positioned in eight years, as it relates to capital improvement funding from rates and capital reserve fund balances. la Executive Summary ES-2 City of Pleasanton Local Sewer Rate Study