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groundwater,recycled water,base delivery,maximum day,maximum hour, meter servicing, and customer <br /> service. <br /> 3. Determine Units of Service and Unit Costs for Cost Components: Each cost component is associated <br /> with a specific unit of service; costs within each component are divided by the total units of service to <br /> determine the unit cost. For example, customer service costs are associated with the total number of <br /> customer accounts. Dividing total annual costs by total customer accounts yields the unit cost of customer <br /> service. <br /> 4. Distribute Cost Components to Customer Class: The cost of the system, allocated by system component <br /> unit costs, are distributed to customer classes and tiers in proportion to their respective demands and <br /> burdens on the system using the units of service and unit costs for each component. <br /> 1.6.3.RATE DESIGN AND DERIVATION <br /> Rates do more than simply recover costs. Within the legal framework and industry standards, properly designed <br /> rates should support and optimize a blend of objectives, such as conservation, affordability for essential needs, and <br /> revenue stability, among others. Rates can act as a public information tool in communicating these objectives to <br /> customers. <br /> 1.15APREPARATION OF ADMINISTRATIVE RECORD AND RATE ADOPTION <br /> Rate adoption is the last step of the rate-making process. Raftelis documents the Study results in this Report(also <br /> known as the administrative record), which reflects the basis upon which the rates were calculated, the rationale <br /> and justifications behind the proposed charges, any changes to the rate structures, and anticipated financial impacts <br /> to ratepayers. <br /> 1.7. Financial Plan Results and Recommendations <br /> 1.7.1.FACTORS AFFECTING REVENUE REQUIREMENTS <br /> The following items affect the water utility's revenue requirement(i.e., costs) and thus its water rates. The utility's <br /> expenses include O&M expenses, capital project costs, debt service, and reserve funding. <br /> • O&M Funding: There are a few factors influencing the increase in spending on O&M. First, higher than <br /> usual inflation has led to higher O&M costs than were previously planned for under the current water <br /> rates. Next, because of recent drought conditions, Zone 7 purchased water costs are expected to increase in <br /> the coming years. Finally, the water system will be bringing on three new full-time employees(FTEs) at <br /> the start of the Study period. <br /> • Capital Funding: The water utility has approximately$37.9M in planned capital expenditures from FY <br /> 2024 through FY 2028(accounting for inflation).Planned capital project costs are anticipated to be entirely <br /> cash funded through net rate revenues and existing and future reserves. <br /> • Reserve Funding: Reserve targets are adopted to ensure enough cash on hand to meet routine cash flow <br /> needs, provide adequate for planned repairs and replacements(R&R) CIP, navigate emergencies in the <br /> event of asset failure or natural disaster, and to protect ratepayers from rate spikes. Table 1-3 summarizes <br /> the City's current reserve policy. <br /> Table 1-3: Reserve Policy <br /> PolicyReserve PolicN Target , Target <br /> Water Operating and Capital 35% of O&M Expenses $11,533,550 <br /> Recycled Water Operating 35% of O&M Expenses $918,997 <br /> Total $121452,547 <br /> WATER AND RECYCLED WATER RATE STUDY REPORT 5 <br />