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for capital improvements (CIP), which will be incorporated into the financial plan. We understand that the City's master plans for each utility are currently under development, so this may be an iterative process. The model will have the capability to examine different CIP scenarios, allowing staff to consider different planning periods and adjust planned projects. We will review and discuss reserves for operating, capital, rate stabilization, and emergency purposes. We will then propose any necessary revenue adjustments. These adjustments will translate into revenue requirements that will drive the development of rates for the water, recycled water, and sewer utilities. Our models include intuitive visual dashboards with features such as: • Flexibility to change assumptions such as water sales, CIP levels, and revenue adjustments • Error flagging of results such as failure to meet debt coverage, unmet reserve targets, etc. • Sensitivity analyses that can be viewed instantaneously with built-in screen graphics Meetings: Two webinars with City staff; one in-person meeting with City staff Deliverables: Water, Recycled Water, and Sewer Financial Plan Models in Microsoft Excel Task 3: Cost of Service Analysis The cost of service analysis task provides the defensibility needed to meet Proposition 218 requirements. Our water cost of service analysis will be based on industry standards and methodologies consistent with Manual Ml, Principles of Water Rates, Fess, and Charges published by the American Water Works Association (AWWA). Cost allocations will be based on the AWWA-approved Base-Extra Capacity method which focuses on different usage patterns (or peaking factors) demonstrated by each customer class. Based on the revenue requirements identified in Task 3, the cost of service will be allocated to cost components and then to the customer classes based on the relative responsibility of each class. The result is the total cost responsibility for each customer class. Recycled water rates will be calculated according to appropriate AWWA-approved cost-of-service-based principles as well. The sewer rate study will follow the methodology set forth by the Water Environment Federation's (WEF) Manual of Practice No. 27, Financing and Charges for Sewer Systems. The sewer cost of service analysis involves three steps: the first is functionalizing revenue requirements to functions such as collection and billing. The second is allocating those functions to cost causative factors such as average daily flow, peak flow, and billing requirements. Finally, cost of service is determined by distributing the cost causative factors to customer classes based on service requirements. The cost of service analysis calculates unit costs for flow and strengths requirements. Once each class' cost responsibility is known, we can calculate sewer service charges in Task 5. Specifically, in addition to the standard cost of service allocation, Raftelis will evaluate the following, if schedule permits: • Pass through Zone 7 fixed charge to customers • Review the fixed and variable charges allocation for water, recycled water, and sewer • Review feasibility of zone elevation surcharge • Review capacity expansion and recycled water surcharge • Evaluate the basis of providing collection service to DSRSD and City of Livermore • Review recycled water fixed and variable charges based on cost of service principles 71Page