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March 18, 2010 4. RATE DESIGN The rate design builds on the results of the cost -of- service analysis to derive rates that will generate the appropriate amount of revenue from the service and consumption charges and, with respect to the consumption charges, from each customer class. 4.1. RATE- MAKING OBJECTIVES The rate design is guided by the prevailing rate making objectives, which for the City are summarized as follows: 1. Maintain the current amount of revenue generated by the meter and consumption charges so customers receive a material reward for efficient water use and a deterrent for inefficient water, as advised by state -wide guidelines. 2. Maintain the current graduated set of service charges in which the service charge for the largest meter (i.e., 10 inch) is about 275 times that of the smallest meter (5/8 inch); charges for the intervening meter sizes fall within this range. Multiples of this magnitude are commonly found in service charges. 3. Modify the current residential three -tiered consumption charges to include a fourth tier to provide a strong price signal to use water efficiently. 4. Maintain a uniform charge for commercial customers, including the existing commercial customers plus MFR customers. 5. Convert the seasonal irrigation rates to a non seasonal, uniform charge to give a year -round price signal to irrigate efficiently. These objectives are consistent with industry standards and practices by retail water agencies in California. 4.2. RESIDENTIAL CONSUMPTION CHARGES Designing tiered rates involves two steps: (1) determining the "breakpoints or volumes of water where the price per tier changes and (2) determining the price or rate per tier. 4.2.1. Existing Tiers In evaluating the residential consumption charges, a representative sample of all of the customer bills for a recent year (November 2007 through October 2008) was compiled to produce the bill distribution curves shown in Figure 4 -1A. The three curves show cumulative bills, consumption, and revenue. Also shown are the breakpoints for the existing three tiers. For example, Tier 1 includes all bills up to 30 HCF per bi- monthly billing period, which is 374 gallons per day or less. Water use at 30 HCF is below the 36.8 HCF average but Page 14 HF&H Consultants, LLC