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Figure 3 Fund Balances - Total Funds $16 N o $14 $13.4 2 $12 $10 $8.4 $7.9 $8 $6 $4 $2 , $0 FY 2024 FY 2025 FY 2026 Ending Balances —Reserve Target The financial plan determines the revenue requirement, while the cost of service allocates the cost to different customer classes based on the nature of their use. Cost of Service Cost of service is the allocation of the expenses to the different cost components, as required by Proposition 218. Different customer classes have been established because of the nature of their use and characteristics. The cost of service determines how to allocate the costs between the different customer types. 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 the next section for details). 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 to address the health and safety of the water supply, replacement of aging infrastructure and water meters, Page 9 of 19