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4-Detailed Proposal 111=D1 City of Pleasanton I Water and Wastewater Rate Study • A review of the financial impacts of the recycled water system, including the impacts associated with any necessary improvements. If needed, a transition plan to "phase in"any needed rate adjustments. • Recommendations regarding key financial indicators (debt service coverage. capital funding/replacement through rates, reserve levels, etc.). • One three- to four-hour meeting to review draft results of the revenue requirements. The revenue requirement analysis is the first major analytical portion of a comprehensive rate study process. This portion of the study entails reviewing the various revenues and expenses. This task considers the prudent and proper funding for operations and maintenance (O&M) and capital expenditures, and determines the need for rate adjustments over the time period selected. Initial Revenue Requirements Analysis Steps • Step 1 - Selection of a Test Period: A multi-year projected time period. 5 to 10 years, will be reviewed. By reviewing costs over an extended time frame, the City can analyze the impacts of major capital projects. the timing of the projects, and the associated long-term debt needs or rate funding needs. • Step 2 - Method of Accumulating Costs: The methodology will be a "cash basis" approach. Under the "cash basis" methodology, the revenue requirement is composed of O&M, taxes/transfer payments, debt service, and capital improvements funded from rates. This is the same methodology used for the City's past wastewater rate study completed by HDR. • Step 3 - Accumulation of Revenues and Expenses: Revenue requirements are composed of two major types of costs: operational and capital expenses. The operational costs are generally projected from historical or budgeted costs. using escalation factors for future costs, and adjusted for known changes in operations (e.g., changes in personnel, operating costs, growth/expansion, etc.). HDR will begin with the City's most recent financial results and project costs into the future using escalation factors for the various types of costs that the City incurs (e.g., labor, benefits. electricity, chemicals). Costs will be analyzed and adjusted for changes in service levels, customer growth, etc. Recycled water revenues and expenses will also be reviewed separately given the recent court ruling and pending decision on Capistrano.Ill 'Capistrano Taxpayers Association v. City of San Juan Capistrano, the City was challenged, among other items. over the inclusion of recycled water costs within water rates. The ruling of the court in this case was not favorable to the City and if the court's ruling stands, the funding of recycled water costs through general water rates will require changes in the way recycled water costs are funded. 15007 4-5