AgdaPkt 2016-06-13 Interview and Joint SA PFA

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7.A. - Page 63 2.13.1 Fixed & Variable Cost Recovery The following tables allocate costs for recovery from fixed rates vs. variable quantity charges. Costs are allocated as follows: • Fixed annual costs for staffing, administration, operations, and rent are allocated 100% for fixed rate recovery. These costs are almost entirely incurred regardless of the volume of water sales. Recovering these costs from fixed charges provides a prudent level of revenue stability despite changes in the volume of water sales. • Costs related to wholesale water supply are allocated 100% to cost recovery from variable, quantity charges. • Costs for the City's recycled water system program are allocated 20% for fixed cost recovery and 80% for recovery from variable water charges. All customers benefit from the City's recycled water system because it provides additional water supply reliability, particularly in the event of a water shortage or drought. The recycled water system was developed as an indirect source of potable water supply in an effort to reduce the City's potable water demands. Hence a substantial 80% of these costs are allocated for cost recovery from usage charges. The system also provides some benefit to all customers via improved potable water supply reliability, hence a 20% share of costs are allocated for fixed cost recovery. • Similarly, costs for the City's Water Resources Management Program are also allocated 20% for fixed cost recovery and 80%for recovery from variable water charges. • Costs for the City's meter replacement program are allocated 100% for recovery from the City's fixed meter charges. • Capital improvement costs are allocated to fixed and variable rate revenue recovery in recognition that these improvements both a) partially benefit all customers by ensuring infrastructure is capable of meeting customer demands at all times regardless of actual use, and b) partially benefit customers based on the actual demands they place on the water system under a perspective that some costs should be recovered proportionately based on usage. • The City also receives some non-rate revenues — such as interest earnings, miscellaneous charges and late fees, and connection fees — that help fund water system costs. These revenues are used to offset the funding requirements from the City's fixed rates. The following table shows the attribution of costs for fixed vs. variable rate recovery for fiscal year 2018/19. B Water Utility Finances& Rates 36 �'\ Water&Sewer Financial Plans&Rate Studies