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Water Rate Cost-of-Service Study Section 5. Rate Design HF&H Consultants, LLC | July 8, 2025 | Page 41 of 53 Single Family Residential Water Use Charges The City’s Single Family Residential customers are currently charged a four-tier increasing block rate structure.17 This structure consists of successive blocks of water usage, with the unit price increasing in each block. It is progressive in nature, meaning that water use is billed sequentially by tier—starting with Tier 1 and progressing to higher tiers as usage increases. For example, all metered water is first billed at the Tier 1 rate, with only the portion of water exceeding Tier 1 thresholds billed at Tier 2, and so on for Tiers 3 and 4. Historically, increasing block rates have been implemented to promote conservation and to better reflect the incremental costs associated with higher usage. This type of structure has also helped address seasonal peaking and discretionary outdoor use, particularly in the Single Family Residential class. However, evolving customer behavior, improved efficiency, and updated cost-of-service practices have prompted a reevaluation of this approach. As part of this study, a change is recommended from the current tiered rate structure to a uniform volumetric rate for all customer classes, including Single Family Residential. The shift to uniform rates is supported by the City’s current cost-of-service methodology, which no longer relies on demand peaking metrics to allocate costs. Instead, costs are now distributed based on system demand, capacity requirements, service levels, and public and private fire protection needs. Further, the City has a single water source and is charged a uniform water price regardless of the volume that is purchased. This allocation more accurately reflects how customers utilize the system and supports a uniform rate that is equitable and aligned with proportional cost-of-service principles. Commercial/Multi Family Water Use Charges We recommend that the City continue to maintain uniform rates for its non-Single Family Residential customer classes. This structure remains appropriate given the diversity of water use patterns within these classes and aligns with the cost-of-service methodology that allocates costs based on overall demand, capacity, and service characteristics rather than usage tiers. Water Use Charges Summary Referring to Figure 4-7 we can see the allocation factors associated with demand and Figure 4-8 illustrates the allocations across demand, services, and fire protection. Figure 5-8 details the annual demand in HCF. The consumption charge is calculated by dividing the total demand-related costs by total water use to determine the rate needed to recover those costs, this is shown in Figure 5-9. Figure 5-8. Annual Demand Source: FY 2022-23 and FY 2023-24 City water consumption data. 17 For simplicity, we use the term “tiered rates” synonymously with “increasing block rates.” “Inclining block rates” is commonly used for “increasing block rates.” However, because an incline can slope both up or down, it is ambiguous in this context and therefore is not used in this study. Units of Service - Annual Demand (hcf) Single Family 1,660,000 Non-Residential 1,951,875 3,611,875 ATTY/RESO.0109/CC RESO WATER RATES - EXHIBIT A REV: 11-05-25 MI