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Water Rate Cost-of-Service Study Section 4. Cost-of-Service Analysis HF&H Consultants, LLC | July 8, 2025 | Page 29 of 53 Specific programs reflect a composite allocation of account costs to all three service components. Allocations applied to each cost component are summarized in Figure 4-8. 3. Fire protection allocations – Costs from Step 2 specific to fire protection services are distributed to public and fire protection service component (See Figure 4-8). This sequence of steps is further explained below. The steps constitute the cost-of-service analysis, which converts the revenue requirement for FY 2025-26 in Figure 4-6 into the eventual cost of service for setting Service Charge rates and Water Use Charge rates in Figure 4-9. Service Function Cost Classification After determining a utility’s revenue requirements, the cost-of-service analysis begins by aligning the budget items with the associated function. For example, some cost items are related to functions that support the ability to meet water demand while other costs are incurred to provide customer service. In other words, “function” refers to the type of operational activity or capital cost needed to provide service. Organizing the budget by functions correlates budget items with the rate that will fund the cost. The service functions for each cost category determine how the capital and O&M costs are allocated. City Water Enterprise Fund Programs There are six operating expense programs paid for by the Water Enterprise Fund. Each program contains line item account costs that were assigned one of the three service functions. This exercise is included as Table 8B in Appendix A. Here is an overview of each of the six programs and the functions each program provides:  61410 – Revenue Services. This program category includes the administrative expenses incurred for processing meter reads and other billing activities. These costs are independent of volume of water used or available space in the system and are apportioned on the basis of the number of meters served.  65142 – Water Customer Services. Costs within this category support operational related activities, including meter reading, addressing customer inquiries, and protecting the City’s water distribution system through the cross-connection control program.  65144, 65147 – Water Supply and Distribution. This program includes costs to operate, maintain, and repair the City’s water distribution system to comply with County, State, and Federal regulations. Program costs within this category include public and private fire protection service costs, as well as servicing the existing debt service incurred by the Water Enterprise Fund. Given the various infrastructure associated with providing water to customers, various accounts within this program have been classified functionally as demand, capacity, or customer service. Water is pumped throughout the system to service demand. Supply reservoirs are located at high points in the system so that water can flow to customers by gravity as demanded. Water fills the reservoirs from pump stations at a fairly steady rate compared to the outflow to customers, which occurs at the peak hour of the peak day. Costs to maintain, operate, and manage the City’s recycled water system are captured in this program. These costs include those incurred to purchase recycled water from Silicon Valley Clean Water for the City’s use. ATTY/RESO.0109/CC RESO WATER RATES - EXHIBIT A REV: 11-05-25 MI