Reso25 16368 - Laserfiche WebLink

Browse Search

Water Rate Cost-of-Service Study Section 4. Cost-of-Service Analysis HF&H Consultants, LLC | July 8, 2025 | Page 28 of 53 and cost-of-service principles, corresponds to available data, and enhances administrative efficiency. Under this recommendation, all customer classes will pay the same rate per unit of water consumed, regardless of usage volume.  Although the City has different pressure zones, we do not recommend that the City charge rates by zone. The City’s water facilities are an integrated distribution network, not a series of isolated zones served by separately dedicated reservoirs, pumps, and distribution pipelines. Water facilities are designed as integrated networks that balance pressures and keep water from stagnating. Water that is pumped to the highest zones not only benefits customers in the highest zones but can also benefit customers in lower zones to which the water also flows. The cost-of-service analysis determines how much of the revenue requirement should be recovered from the fixed Service Charges and the variable Water Use Charges for each customer class. COST-OF-SERVICE ALLOCATIONS As the name implies, cost-of-service analysis is a process of determining how much services cost. To provide water service, infrastructure must be constructed, operated, and maintained, which must be paid for from cash or debt. The type and size of infrastructure depends on how much service customers require. Water systems are designed to provide sufficient capacity to meet customer demands for service wherever, whenever, and for as long as demanded. Although each customer places unique demands on the system, water system infrastructure must be designed to reliably meet the highest levels of expected usage across all customers. The size and capacity of system components—such as pipelines, storage tanks, and pumps— are influenced by the need to serve the full range of demands under varying conditions. Greater usage levels and service requirements result in the need for larger, more costly infrastructure, as well as increased operating and maintenance (O&M) expenses. The purpose of a cost-of-service analysis is to allocate the costs of providing this system capacity to all customers. It is important to understand that once the infrastructure is designed and built, the capacity it provides is continuously available, regardless of whether customers are using their full potential demand at a given time. All customers, regardless of their individual usage patterns, benefit from having access to reliable service at any time. As such, the cost of constructing, operating, and maintaining the system is allocated across all customers’ impact on system design and utilization. Analytical Procedure The cost-of-service analysis in this study involved a series of four steps that allow for reasonable cost allocations. Costs must first be classified according to the associated function. Functions provide the level of service required by customers. The cost of functions can be allocated in proportion to the service provided. 1. Service function cost classification – Revenue requirements are summarized by Water Enterprise Program and service function cost categories, which is needed for allocating costs that will be used for calculating rates (See Figure 4-6). 2. Cost function allocations – Costs from Step 1 are allocated to the demand, customer service, and capacity service components (See Figure 4-7 and Appendix A, Table 8B). ATTY/RESO.0109/CC RESO WATER RATES - EXHIBIT A REV: 11-05-25 MI