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Section 1 Development of the Revenue Requirement 1.1 Introduction This section of the report discusses the development of the City of Pleasanton's local sewer revenue requirement analysis. The revenue requirement analysis is the first analytical step in the local sewer rate study process. This analysis determines the adequacy of the City's overall local sewer utility rates. From this analysis, a determination can be made as to the overall level of local sewer rate adjustment needed to provide adequate and prudent funding for both operating and capital needs. Typically, one of the main objectives of a sewer rate study is to develop "fair and equitable" rates while attempting to minimize the impacts to the utility's customers. City staff developed the basic revenue and expense projections which HDR reviewed and analyzed to develop the revenue requirement for this study. In reviewing the local sewer revenue requirement, it was assumed that the utility must financially "stand on its own" and be properly funded. As a result, the revenue requirement assume the full and proper funding needed to operate and maintain the system on a financially sound and prudent basis. A major focus of this section of the report will be the funding of the near and long -term maintenance of the local collection system. The capital improvement plan is often the driving force in a utility's overall funding needs, and that is the case for the City's local sewer utility. Provided below is a detailed discussion of the development of Pleasanton's revenue requirement analysis. "The capital improvement plan is Olen the driving force in a utility's overall funding needs, and that is the case for the City's local sewer wilily." 1.2 Determining the Time Period and Method of Accumulating Costs The initial step for developing the revenue requirement for the City 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 projected eight -year time period of fiscal year 2010 2017. By reviewing costs over an extended time period, the City can anticipate and plan around any significant changes or needs in operating and capital requirements. By planning around these anticipated needs, Pleasanton can minimize short-term rate impacts and overall long -term rates. The City is currently developing an asset management plan for this utility which considers their capital improvement and maintenance needs over a long -term time period. Obviously, this study is not attempting to establish rates for this length of time period, but it is important to understand the potential funding needs the City may have for asset management needs over the next ten (10) to thirty (30) years. TTT ^r Development of the Revenue Requirement t City of Pleasanton Local Sewev Rate Study