ITEM 24 ATTACHMENT 2 - Laserfiche WebLink

City of Pleasanton 2025 Water Rate Study Water Resources Economics 61 4. POTABLE WATER RATES 4.1 RATE DESIGN METHODOLOGY A four-year proposed water rate schedule was developed based on the results of the proposed financial plan and cost-of-service analysis. The key steps in developing the proposed rate schedule are outlined below: • Rate structure evaluation: The existing rate structure is evaluated, and any proposed changes are identified. Proposed rate structure changes are typically intended to address specific policy objectives or to improve legal defensibility. • Test year rate development: Rates are calculated for the proposed rate structure for the cost-of- service test year (FY 2025). Rate calculations directly incorporate the unit costs developed in the cost-of-service analysis. The test year rates are revenue neutral, then are increased based on the proposed financial plan revenue adjustments. Although total rate revenues in the first year of adjustments (FY 2026) are designed to increase by the proposed revenue adjustment percentage (15% in FY 2026), the proposed percentage increase to each rate/charge varies due to the updated cost-of-service allocations. • Four-year rate schedule development: Proposed rates for the full four-year period are calculated by increasing the cost-of-service rates by the proposed annual revenue adjustment percentages from the proposed financial plan. 4.2 PROPOSED CHANGES TO RATE STRUCTURE Currently, the City has the same bi-monthly fixed charges for potable and recycled water customers. To ensure that potable and recycled water customers only pay for the costs specific to each service, WRE recommends implementing separate bi-monthly fixed charges for potable and recycled water customers. Additionally, the City’s current variable charge rate structure consists of a four-tiered variable charge for Single Family customers and a uniform variable charge for all other customer classes based on usage. Recent court cases have highlighted potential legal risks associated with tiered rate structures for different customer classes, particularly when tier definitions are not clearly cost-justified or specific to agency customer use characteristics. Considering that the City’s current cost structure consists of one supply source and based on input City staff, PWAG and City Council, WRE recommends implementing a uniform variable charge for all customers, including Single Family, to strengthen legal defensibility of the City’s rate structure. Based on discussion with City staff, City Council, and PWAG, the proposed rate schedule also assumes a full pass-through of Zone 7 fixed and variable costs on the Zone 7 fixed charges and variable charges, respectively. Currently, a portion of Zone 7 fixed costs are recovered through the Zone 7 fixed charges, and the remaining portion is recovered through the Zone 7 variable charges. The proposed change to the rate structure ensures that the City recovers sufficient and reliable revenue to pay for Zone 7 fixed costs and will mitigate the financial risks associated with reductions in water demand as it pertains to Zone 7 water supply costs.