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Exhibit A -Scope of Work task will review both of these legal requirements and determine how they may impact or be applied to the manner in which the City establishes their rates. In addition to the items noted above, the City may also have outstanding revenue bonds which carry certain legal covenants, which need to be recognized within this process. At the conclusion of this task, a meeting or conference call will be held with the City to discuss any findings, recommendations or potential changes that maybe needed. Expected City Staff Support for Task 1.3: For this task, the City will be expected to: ^ Provide any background information or previous legal opinions concerning Prop 218 and Government Code 66000. Deliverables as a Result of Task 1.3-Review Policies, Prop. 118, and Government Codes. From the work accomplished above, the deliverables for this task will be as follows: ^ A review of Prop. 218 and Government Code 66000 and their impact on the City's rate setting process ^ Review the City's asset management report and incorporate as appropriate into the financial planning process. ^ Recommended changes or modifications to the City's financial/rate setting policies to reflect the impacts of these legal constraints. Task 1.4-Develop Revenue Requirements Task Objective.• Based upon the City's most recent data, prepare budget projections for use in projecting revenue requirements. Using a "generally-accepted" rate setting methodology, project the City's local sewer revenue requirements for a three year period, utilizing City's capital infrastructure planning documents (e.g. Capital Plan/Master Plan), while ensuring adequate funds for operating and capital needs. The revenue requirement analysis will establish the cost-based `level' of revenue to be collected from rates, under the Ciry's existing financial/rate setting policies. The development of the revenue requirement analysis is the first major analytical portion of the comprehensive rate study process. This portion of the study entails reviewing the various sources of funds (revenues) and comparing them to the applications of funds (expenses) for the sewer utility. This task also considers the prudent and proper funding for O&M and capital expenditures, and determines the need for any rate adjustments over the time period selected. In developing the revenue requirements, aten-year model will be developed and the revenue requirements under this task will be developed using the City's existing financial/rate setting policies. Amore detailed discussion of the various steps involved in developing the City's revenue requirements is provided below. STEP I -SELECTION OF A TEST PERIOD -The first step in the development of the revenue requirements is the selection of a "test period". A "test period" refers to a time frame of reference for the accumulation of revenues, expenses and consumption data. In this case, the City desires the development of a ten-year model to look out over an extended time horizon. However, for rate setting purposes, the City has stated that they desire to review, or focus on, a three-year period (FY 2007/08 - FY 2009/10). STEP 2 -METHOD OF ACCUMULATING COSTS -Once the "test period" has been determined, the ~T~^~-r1 Comprehensive Loeal Sewer Rate Study A-3 1 iJ. • City of Pleasanton