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City of Pleasanton Water Rate Study 1. Introduction Revenue stability Rates are designed to recover revenue from the City's fixed and variable charges that will adequately cover its fixed and variable costs, barring water shortages when rationing is required. Conservation signal Rates are designed to recover the cost of service from each customer class and, within each class, to provide appropriate rewards for efficient water use and to discourage waste. Administrative ease Rates are designed to enable easy implementation and ongoing administration, including monitoring and updating. Affordability Rates need to be as affordable as possible while maintaining a sound financial position and credit rating. Customer acceptance Rates are designed to be as simple as possible to facilitate customer understanding and acceptance. Fairness Rates are designed so that each customer class pays its proportionate share of the required revenue in compliance with legal rate making requirements. In the current rate study, a key consideration was encouraging efficient water use within the SFR customer class, which is where considerable discretionary irrigation occurs. The existing set of three tiers in the residential consumption charges was developed over 15 years ago after the last major drought. The City Council determined that adding a fourth tier would focus the price signal on the appropriate customers, given today's customer demand patterns, thereby rewarding low use and discouraging high use. The result of adding a fourth tier to the residential rates raised the question as to whether it still made sense to include MFR customers in the residential class. In order to do so, adjustments have been made to the multi- family use based on the size of the meter connection. These adjustments factor the use in proportion to the capacity of the connection, but have been applied inconsistently. Moreover, landlords receive the bill, rather than the end -user tenants. As a result, the tiered price signal is not as effective. It was concluded that it would be more equitable and easier to administer if the MFR customers were moved from the residential to the commercial customer class. City staff concluded that the seasonal irrigation rate structure should be converted to a uniform structure. The City's seasonal rates were designed to encourage efficiency during the peak irrigation season. To do so, the high peak season rate was balanced with a very low off -peak rate in order not to charge more than the cost of service to the irrigation class over the course of a year. Seasonal rates are best suited for systems where there is little off -peak demand. In the City's case, however, there is significant irrigation during the off -peak that benefits from the very low rates; it is possible that not all of the irrigation customers use their March 18, 2010 Page 6 HF&H Consultants, LLC