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Exhibit A -Scope of Work ^ Meeting or Exceeding Minimum (Tazgeted) Debt Service Coverage Ratios The final results of this process will be a three-year projection of the rate adjustments required to support the financial plan (O&M and capita] funding). Reserves/rate stabilization funds may be used to moderate any large rate adjustments that maybe needed. Expected City Staff Support for Task 1.5: For this task, the City will be expected to: ^ Assist "as-needed" in the development of the final financial plans. ^ Participate in a conference call to discuss the draft financial plans. Deliverables as a Result of Task 1.5 -Develop Multi-Year Financial Plans. From the work accomplished above, the deliverables for this task will be as follows: ^ A financial plan (revenue requirement) for the three yeaz period of FY 2007/08 - FY 2009/10. ^ A financial plan that incorporates, as appropriate, the City's proposed financial/rate setting policies. ^ A final capital financing plan within the revenue requirement analysis, utilizing the City's comprehensive plans or capital budget, which attempts to maximize capital expenditures, while minimizing the impacts to customers over time. ^ A projection of key financial indicators (debt service coverage, capital replacement, reserve levels, etc.). Task 1.6-Prepare Cost-of-Service Analysis Task Objective: Develop an average embedded cost of service study to equitably allocate the local sewer revenue requirements to the customers served by the City. Given the results of the revenue requirements/financial plan, the City's local sewer costs will be allocated to the various customer classes of service using an average embedded cost of service methodology. In simplified terms, a cost of service study attempts to equitably allocate the revenue requirements between the various customer classes of service (e.g. residential, multi- family, commercial, etc.). A brief discussion of the major steps associated with the cost of service analysis is provided below. STEP 1 -SELECTION OF TEST PERIOD AND METHOD -The f1rSt Step Of a COSY Of Serv1Ce 1S t0 select a time period for the allocation of costs. This is similar to the revenue requirement time period selection process noted above. A cost of service analysis typically reviews a 1 to 2 yeaz time period, or the period over which sewer rates will ultimately be set. In the City's case, allocating FY 2007/08 revenue requirements may be appropriate. The selection of this test period for the cost of service will be discussed and confirmed with the City. Similaz to the revenue requirements, the City may use a "cash basis" or "utility/accrual basis" methodology for the cost of service study. In this particular case, given that the revenue requirements are developed on a "cash basis" approach, HDR would recommend that same methodology for the cost of service. STEP Z -REVIEW OF SYSTEM DATA AND CHARACTERISTICS- h1 developlrig a COSt Of Service analysis, an important aspect of equitably allocating costs is understanding the system and the data available to allocate costs. This step will review the City's system to help determine the L ~ Comprehensive Local Sewer Rate Study A-7 1 ~f City of Pleasanton