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demands associated with a particular customer class could justify allocating costs based <br /> on peak use rather than average demand. In the City's case, setting rates to discourage <br /> waste is a key objective. Not only is this sound resource management in a world of <br /> increasing scarcity, it makes good financial sense in view of how much of the revenue <br /> requirement is represented by the cost of Zone 7 water. The easiest sector of demand in <br /> which to encourage efficiency is irrigation, which is also where considerable peak <br /> demand occurs. <br /> In keeping with the City's objective, we recommend setting the City's consumption <br /> charges to reflect seasonal demand. This was accomplished by allocating costs other <br /> than the cost of Zone 7 water (which does not vary seasonally) in proportion to peak <br /> season demand, rather than average annual demand. These allocations also reflected <br /> the shift of MFR customers from the residential to the commercial class to reflect the <br /> commercial status of landlords. <br /> Figure 3 compares the distribution of projected FY 2010 -11 revenue among customer <br /> classes based on (1) the current rates structure, (2) the current rate structure increased <br /> across the board by the projected 27% increase in consumption charge revenue, and (3) <br /> the rates revised for the cost -of- service allocations and shift of MFR customers from the <br /> SFR class to the commercial class. The results indicate the following: <br /> Current rates with no increase. The commercial class (excluding MFR <br /> customers) pays a disproportionately small portion of the revenue from <br /> consumption charges, which reflects a cost -of- service analysis prepared 17 years <br /> ago. Since then, the relative demand among customer classes has shifted. <br /> Current rates with across the board increase. Applying a 27% increase to the <br /> existing consumption charges perpetuates the current disparity among customer <br /> classes. <br /> Revised rates with increase. The combination of applying peak allocations and <br /> shifting MFR customers to the commercial class yields a slightly lower 24% <br /> increase for the SFR customers and higher increases for the commercial and <br /> irrigation customers. With these increases, the SFR and commercial classes pay <br /> an average cost per HCF that is lower than the overall $2.22 /HCF. The irrigation <br /> customers pay an above average cost because of their comparatively high <br /> peaking. <br /> March 18, 2010 Page 12 HF &H Consultants, LLC <br />