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Apparent anomalies related to the COS-based rate increase requirement • The foundational principle, stated in the Pleasanton 2023 Water Report in Section LS to comply with California Proposition 218, is: As stated in the Ml Manual, "water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers." • AWWA's M1 Manual provides alternative guidelines but does not prescribe one. As stated in its Chapter 1.1: ...it is essential to understand that a cost-of-service methodology does not prescribe a single approach.Rather, as the first edition of AWWA's Manual M1 noted, "the [Ml manual]is aimed at outlining the basic elements involved in water rates and suggesting alternative rules of procedure for formulating rates, thus permitting the exercise of judgment and preference to meet local conditions and requirements" (AWWA 1954). Here are some observations. • Please note this excerpt from Section 1.7.2 of the 2023 Water Report. The proposed revenue adjustments represent the increase to total rate revenues required to recover the water utility's costs and not the expected impact to each customer class. Water rates developed for the base year(FY 2024)reflect the results of the COS analysis,which impacts each customer class, and tier,differently. Revenue adjustments in subsequent years are applied across all charges, classes, and tiers proportional to the base year rates. Table 1-4: Proposed Revenue Adjustments Effective Month January January January Percent Adjustment 30.0% 20.0% 12.0% From this extract, rate increases for each customer class may differ from the overall revenue increases sought by the city water department (including the Zone 7 portion). • Section 4.5 of the report shows the customer impacts for various customer classes only for the first year of the study. I reproduce the charts below. Please note the wide variance in how the burden of incremental costs is allocated within and across different customer types, raising a question about whether the underlying costs of service are that widely different based on what is widely believed about the cost structure and the economics of operating water utilities.