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4.Detailed Proposal [L %'� City of Pleasanton I Water and Wastewater Rate Study use and customer impacts on the system. However, as part of the analysis the relationship of fixed and variable costs will be reviewed and recommendations made to reflect the City's goals for revenue stability and how the City incurs costs. Cost of Service Study Steps • Step 1 - Selection of Test Period: The next step of a cost of service is to select a time period for the allocation of costs. A cost of service analysis typically reviews a one- year time period, or the period over which rates will be established. HDR, in consultation with the City. will select an appropriate test period for the cost of service analysis. It is assumed that FY 15/16 will be utilized for this study. • Step 2 - Determination of Classes of Service: Classes of service refers to the grouping of customers for purposes of allocating costs. A major objective of the cost of service process is to determine the cost associated with serving a particular customer or customer group. During the development of the study. HDR will discuss with the City the customer classes of service for purposes of this analysis. The development of wastewater rates will also depend on the rates as developed by Dublin San Ramon Services District to maintain consistency with the regional rates. HDR will review with the City to determine if alternative classes of service should be developed or considered for either utility. • Step 3 - Functionalization and Allocation of Expenses: Next, plant and costs are functionalized. Functionalization refers to the arrangement of cost data into its basic cost categories. For water this is typically source of supply, pumping, transmission, storage, and distribution, while wastewater is typically collection and pumping. Costs are then allocated to their various cost components. For the City's wastewater study, the focus is on the local collection component,which is primarily based on customer's volume, or wastewater contributions to the system. The water allocation will be more detailed to reflect how customers utilize the system on an average and peak day basis. Classification will be based upon generally accepted cost of service techniques. • Step 4 - Development of Distribution Factors: To distribute the allocated plant investment and expenses, distribution factors will need to be developed. For each allocated cost, an equitable method will be developed to distribute each specific cost to the various customer classes of service. • Step 5 - Distribution of Plant (Infrastructrue) and Expenses: Given the allocation of plant and expenses (revenue requirements), along with the development of distribution factors, the costs can be distributed to the various customer classes of service of each utility. 15007 4-9