City Council Approves Changes to Water Rate Structure as Part of the City’s Water Rate Update Later This Year

City Council Approves Changes to Water Rate Structure as Part of the City's Water Rate Update Later This Year

• May 8, 2025

On Tuesday, May 6, the City of Pleasanton presented its Water and Recycled Water Cost of Service Study and Rate Design Analysis to the City Council. This study identified proposed changes to the City's existing rate structure as it moves toward updating its water rates to meet the long-term goals and needs of Pleasanton's water system.

The City is now at the final stage of its three-step rate-setting process, which included identifying the water system's long-term infrastructure, operations, and maintenance needs and establishing a financial framework to support them. The Cost of Service Study and Rate Design Analysis evaluated various rate structure amendments and proposed preliminary rates for the next four years, ensuring the City can effectively cover its service costs and meet its revenue requirements. The study also compared the City's current and proposed rate structure with neighboring agencies, showing that its rates are comparable to or lower than others in the region.

After considering the options presented, the City Council unanimously supported staff's recommendations, including:

• Adopting a Uniform Consumption-Based Variable Rate for All Customers - Consumption-based monthly charges, or variable costs, change from bill to bill based on the water used. Currently, the City uses a tiered rate structure for its single-family customers. In a tiered rate structure, customers pay less per unit of water in the lower tiers, while they pay more per unit in the higher tiers. Tiered rate structures have been standard for many years to encourage water conservation. However, court cases have challenged tiered rate structures, as the law (Proposition 218) prohibits rate discrimination and requires that all rates accurately reflect the actual cost of service. Therefore, the City was advised to adopt a uniform rate structure for all customers to achieve greater consistency and avoid legal risk. Under this new rate structure, all customers will be billed the same rate for each water unit regardless of use.

• Achieving Full Cost Recovery of Zone 7 Fixed Costs - Fixed charges are established fees for customers, regardless of their water usage. These charges remain constant and are determined by the size of the customer's meter. Customers in Pleasanton have two fixed charges on their bills: one from the City for water delivery and another from Zone 7 for supplying the water. Currently, the City's water rate structure directly recoups only 32 percent of Zone 7's fixed expenses, with the remainder covered by the variable charge based on consumption. To enhance revenue stability and reduce financial risk, it is recommended that the City fully recover Zone 7's fixed costs. Therefore, these fixed charges would be billed to customers at the rates set by Zone 7 as a pass-through.

The proposed changes to the City's rate structure are expected to affect customers differently. By adopting a uniform rate structure, customers with lower water usage will likely experience a greater impact on their rates than those with higher water usage. A chart detailing the impacts based on the number of water bills each year is available online. The chart indicates that 52 percent of bi-monthly water bills are estimated to increase by $20 to $40 in the first year.

The City also presented a proposed rate structure for recycled water. The City purchases and delivers recycled water to customers in limited service areas. This rate structure was calculated independently and only applies to recycled water customers.

The study's recommendations follow the City Council's approval of the Water Enterprise Financial Plan on March 4, 2025. This plan analyzed the necessary revenue increase to fund the capital improvement projects and operations and maintenance programs identified in the City's Water System Management Plan (WSMP). The approved Financial Plan directed the City to take a balanced approach to water management, considering financial responsibility, infrastructure investment, and the impact on ratepayers. It prioritized the most critical infrastructure projects within the first five years.

"We have taken a strategic, data-driven approach to these water rate changes, aimed at providing full transparency for our residents," said City Manager Gerry Beaudin. "We hope our community will support the tough decisions we must make to ensure the sustainability of Pleasanton's water system to provide safe, high-quality water well into the future."

In June, the City Council is expected to finalize the proposed changes to the City's water and recycled water rates, including new water connection fees and drought or water shortage rates. Following approval of these changes, the City will mail an official public hearing and rate notice to all customers. The City plans to host the public hearing in October, during which the Council is expected to formally adopt new water rates.

The City recently updated its Pleasanton Water webpages, including a new Water Rate page. For more information about the City's water quality, supply, projects, and conservation, visit www.PleasantonWater.com.