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Exhibit A -Scope of Work best method or approach to allocate costs. At the same time, the City's data and information will be reviewed to determine the quality of information available that may become the basis for certain cost allocations. STEP 3 - FUNCTIONALIZATION AND CLASSIFICATION OF EXPENSES -The next Step iri the COSt Of service analysis is to functionalize the data. Functionalization refers to the arrangement of cost data into its basic cost categories (e.g. collection, customer service, administration, etc.). This task should be greatly simplified through the City's use of a uniform system of accounts. Given functionalized costs, the costs are then classified to their various cost components. For a sewer collection utility, classification typically involves detennining whether each specific cost or account item was incurred to meet a consumer's volume, strength or customer-related need. While the basic cost components noted above are the cornerstone to the analysis, they are by no means the only cost components to be utilized for the study. From the prior step, a thorough review of the City's system and vazious types of costs that the City incurs will have been undertaken and specific cost classifiers developed. Classification will be based upon generally accepted cost of service techniques. STEP 4 -DETERMINATION OF CLASSES OF SERVICE - DevelOpmerit Of the COSt Of service beglri5 with determining the classes of service that will be used for purposes of establishing cost allocations. and rates. The process of establishing classes of service is to group customers into homogeneous groups. That is, customers with similar usage and/or facility requirements. The City, within their request for proposal has identified that data is available for certain customer classes of service. These include single-family residential, multiple-family residential, commerciaUinstitutional and industrial. HDR will discuss with the City the appropriate customer classes of service to be utilized with the cost of service study. STET 5 -ALLOCATION of EXPENSES -The next analytical process involved in the cost of service analysis is the allocation of the classified plant in service and expenses to each of the customer classes of service. Once the classes of service have been determined, the process of developing allocation factors is undertaken. In developing the allocation factors, HDR will develop factors that are "fair and equitable" to all customers, and rely upon City-specific data where available. From this step, the revenue requirements will be equitably allocated to each class of service. STEP 6 - SUMMARY OF TaE CosT of SERVICE -Given the allocation of the revenue requirements, the final task summarizes the cost of service. From this process, a luminary page of the cost of service study is provided. The summary page for the cost of service study compares the difference between the current level of rate revenues received from each class of service, and the allocated cost of service for each class. The cost of service will also provide average unit costs, or "cost-based" sewer rates, which are important to the development of alternative and final proposed rate designs. Average unit costs provide the City with an understanding of the cost/rate relationship between fixed and variable costs. In summary, the development of average unit costs will provide "cost of service" based sewer rates for all classes of service for the City. Expected Ciry Staff Support for Task 1.6: For this task, the City will be expected to: ^ Attend ahalf--day project meeting to review the findings and results of the cost of service analyses (review of methodology and key assumptions) LT`S` J Comprehensive Loeal Sewer Rate Study A•S 1 L ` City of Pleasanton