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well above the 18.9 HCF winter average when irrigation is lowest. The current Tier 1 rate, $1.55 /HCF, is 89% of the average cost, $1.75 /HCF. During this period, 61% of the SFR bills were no greater than 30 HCF, 27% of the total water consumed, and 24% of the total revenue was billed. These percentages indicate that almost two- thirds of the total lowest bills amount to one quarter of the quantity charge revenue. Said another way, about one -third of the highest bills generate three- quarters of the revenue. Tier 2 covers the range of bills from 31 to 75 HCF per bi- monthly billing period (up to 935 gallons per day). The 75 HCF breakpoint is well above average summer bills, 55.5 HCF. The current Tier 2 rate, $2.05 /HCF, is 17% above the average cost, $1.75 /HCF. 30 %the bills, 38% of the consumption, and 36% of the revenue are billed in Tier 2. Tier 3 includes all bills over 75 HCF, which includes only 9% of the bills but 35% of the consumption and 40% of the revenue. The current Tier 3 rate, $2.25 /HCF, is 29% above the average cost, $1.75 /HCF. Based on the size of the blocks, how the breakpoints compare with average winter, annual, and summer demand, and the increments between rates for each tier, the City's current tiered residential rates are moderately conservation oriented. The fact that there is as much demand in Tier 3 is the concern. Part of the reason may be due to the possible inclusion of a few MFR customers in the database. The principle reason is that the City's hot summers induce significant irrigation at a cost that does not deter waste. 4.2.2. Recommended Tiers In setting the breakpoints for a four -tier structure, HF &H prepared numerous analyses of alternatives for review by City staff and the Finance Committee. It was concluded that the existing breakpoints should be reduced so that the fourth tier could begin before the current third tier. The result is shown in Figure 4 1B where it is apparent that the breakpoints are close to the average winter, annual, and summer bills. Figure 4 compares the existing and recommended tier structures, showing the breakpoints and prices per tier. The average cost with the 24% increase in SFR rates becomes $2.19. The $1.82 /HCF rate for Tier 1 is 83% of the average, the $2.05 /HCF for Tier 2 is 94% of the average, the $2.35 /HCF Tier 3 rate is 7% above average, and the $3.05 /HCF Tier 4 rate is 39% above average. Figure 4 summarizes the differences between the current and recommended structures. The current Tier 3 rate of $2.25 /HCF is significantly less than the recommended $3.05 /HCF, which provides a noticeable price signal to most SFR 1 City staff attempted to identify all multi family residential (MFR) accounts within the SFR database that was used to generate the bill distribution curves. It is possible, however, that there are a small number of MFR accounts still in this database. For present purposes, however, while not perfect, the database is adequate enough for design purposes. In our experience, no customer billing database is ever perfect. March 18, 2010 Page 15 HF&H Consultants, LLC