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Rate Structure No change is being recommended to the current Tier structure — which is usage-based to encourage conservation — for single family residences (SFR). The majority (55 percent) of Pleasanton customers are in Tier 1 which averages 20 CcF every two months. No changes are being recommended to the Commercial, Multi-Family Residential, or Potable Irrigation uniform rate structures. Staff is recommending a change to the Zone 7 pass through rate structure. The current Zone 7 pass through is a blended variable rate, which combines the Zone 7 fixed and variable rates; the proposed Zone 7 rates will be both variable and fixed charges (see discussion in next section for detail). Potable Water Rates Fixed Meter Charge All customers are billed a fixed meter charge based on the size of the water meter. This charge also covers a portion of the operations and systems maintenance costs such as facility repair and maintenance; daily inspections of water facilities address the health and safety of the water supply, replacement of aging infrastructure and water meters, utility billing, and water conservation and education efforts. This charge is constant regardless of how much water is used. Zone 7 Water Agency Wholesale Water Rate The Zone 7 water rate is provided to the City and is a direct pass through to the City's customers. Government Code §53756 (AB 3030 [2008]) permits the City to automatically pass-through Zone 7's water rates. The setting of this rate is not within the control of the City and is subject to change at least each January 1. The current Zone 7 rate for Pleasanton customers is $3.93 per CcF; this is a blended rate of the Zone 7 fixed and variable rates for the City with 45 percent of Zone 7 costs as fixed costs for FY 2022/23. The proposed Zone 7 fixed costs will be split between fixed costs that will cover 22 percent of the Zone 7 fixed costs and variable costs that cover the remaining 78 percent; this adjustment is a move toward shifting the allocation of the pass-through rates to align with Zone 7's allocation between fixed and variable rates, and will reduce the cost burden on low water users. Distribution Costs by Customer Type Most water delivery fees — that is, distribution costs — vary depending upon the peaks in customer demand for water service. These distribution costs include recycled water surcharge, capacity expansion, and consumption fees as described below. Recycled Water Surcharge In 2015, the City developed a recycled water program for commercial irrigation water for the area between the Dublin San Ramon Services District Wastewater Treatment Plant located on Johnson Drive and the northeast section of Pleasanton. Recycled water benefits all water users by replacing potable water that was being used for irrigation that can now be supplied for domestic water usage. The current recycled water rate for all Page 7 of 17