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5Drought Rates The City engaged Raftelis to conduct a Drought Rate Study as part of the Water and Recycled Water Cost of Service and Rate Study. The City adopted its latest water shortage contingency plan in June of 2021, which details the six drought stages and the corresponding water usage reductions. The resulting drought rates align with Proposition 218 requirements and allow the City to reliably recover the necessary revenue to fully fund the water system in times of reduction in water demand. The major objectives when developing drought rates include: • Determine water allocations for each customer class during each drought stage based on the 2021 Water Shortage Contingency Plan • Calculate the financial impacts of reduced water sales and changes to water supply sources • Evaluate various drought rate structures to determine the structure best suited to meet the City's needs • Develop drought rates that recover the financial impacts of each drought stage based on the cost of providing service 5.1. Process and Approach Drought rates are governed by the requirements of Proposition 218 and Article X of the California Constitution. The development of the drought rates must show the nexus between the costs of providing water service and the rates charged to customers, must maximize the beneficial use of water(often defined as indoor use for health and hygiene), and must encourage conservation. Drought rates are designed to recover lost revenue due to reduction in water use during each stage, to incorporate the potential changes to the City's water supply sources and their corresponding costs, to align with specific drought stages outlined in the 2021 Water Shortage Contingency Plan, and to provide financial flexibility for the City when declaring drought stages and implementing the appropriate drought rates. The proposed rates are based on the City's proposed water rates for FY 2024, which will go into effect January 1, 2024. There are four steps to conducting a drought rate study, which include: 1. Allocating water reductions between various customer classes based on defined drought stages 2. Calculating financial impacts to the City in each stage 3. Determining the most appropriate drought cost recovery mechanism(rate structure) 4. Evaluating financial impacts to customers 5.2. Drought Allocations and Costs This subsection details the water usage allocations and financial impacts of each drought stage, which results in the total amount of revenue to be collected from drought rates in each stage. Numbers shown in the tables of this section are rounded. Therefore, hand calculations based on the displayed numbers such as summing or multiplying, may not equal the exact results shown in this Report. 5.2.1.WATER ALLOCATIONS The first step in the development of drought rates involves allocating water usage reductions between the City's customer classes based on the drought stages defined in the Water Shortage Contingency Plan.Table 5-1 shows the 58 CITY OF PLEASANTON