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3.4• Cost Components The next step in the COS analysis involves allocating the functionalized operating and capital costs to each of the cost causation components (also called cost components). The cost components represent the link between the costs of the various system functions and the reason why those costs are incurred.The cost components used in this Study include: • Meter: represents the costs of purchasing, servicing, and replacing meters • Customer: represents the costs of providing customer service and billing customers • Base (Average Delivery): represents the costs of delivering water to customers under average demand conditions • Maximum Day(Max Day): represents the costs of delivering water to customers on the day with the highest demand • Maximum Hour(Max Hour): represents the costs of delivering water to customers on the hour with the highest demand on the day with the day with the highest demand • Recycled Water: represents the costs of distributing recycled water • Recycled Water Surcharge: represents the capital costs going toward the recycled water system. Before allocating functionalized costs to each cost component, we must determine the allocation basis for certain components. These allocations are derived in the following subsections. 3.5• Peaking Factors Peaking factors represent water demand during peak times of use. As customer classes peak demands increase, so must the size of facilities and pipelines to meet their demands. The larger facilities cost more to construct, maintain, and replace. The point of identifying peaking factors is to charge each class in proportion to the peak demands they place on the water system. Functionalized costs are then allocated to the Base, Max Day, and Max hour cost components using the allocation bases derived from the peaking factors, shown in Table 3-6. City staff provided the Max Day and Max Hour peaking factors(Column B, Lines 2-3) for the water system, normalized to average day(Base) demand. The allocation bases(Columns C to E) are calculated using the equations outlined in this section. Columns are represented in these equations as letters and rows are represented as numbers. For example, Column C, Line 2 is shown as C2. The Max Day allocations are calculated as follows: • Base: B1 /B2 x 100% =C2 • Max Day: (B2—B1) / B2 x 100% = D2 The Max Hour allocations are calculated as follows: • Base: B1 /B3 x 100% = C3 • Max Day: (B2—B1) / B3 x 100% = D3 • Max Hour: (B3—B2) /B3 x 100% =E3 Average Max Day/Max Hour allocations(Columns C to E, Line 4) are equal to the average of the two allocation bases derived above. These allocations are used when system costs are not distinguished between a Max Day or Max Hour function; for example, transportation and distribution(T&D) costs are allocated based on this average. WATER AND RECYCLED WATER RATE STUDY REPORT 37