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The COS analysis and resulting water rates are developed using the principles established by the American Water Works Association's(AWWA)Principles of Water Rates,Fees, and Charges, 7h edition(M1 Manual). The water and recycled water rates developed in this Study were designed based on the industry standard Base-Extra Capacity methodology and the legal requirements set forth in the following section. This methodology allocates costs consistent with demand patterns of each customer class and for tiered rates, the demand patterns of each tier. 1.. Legal Framework, 1.5.1.CALIFORNIA CONSTITUTION - ARTICLE XIII D, SECTION 6 (PROPOSITION 218) Proposition 218 was enacted by voters in 1996 to ensure, in part, that fees and charges imposed for ongoing delivery of a service to a property(property-related fees and charges)are proportional to,and do not exceed,the cost of providing service.Water service fees and charges are property-related fees and charges subject to the provisions of California Constitution Article XIII D, Section 6(Proposition 218).The principal requirements,as they relate to public water service fees and charges are as follows: 1. Revenues derived from the fee or charge shall not exceed the costs required to provide the property-related service. 2. Revenues derived by the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed. 3. The amount of the fee or charge imposed upon any parcel shall not exceed the proportional cost of service attributable to the parcel. 4. No fee or charge may be imposed for a service unless that service is actually used or immediately available to the owner of property. 5. A written notice of the proposed fee or charge shall be mailed to the record owner of each parcel not less than 45 days prior to a public hearing,when the agency considers all written protests against the charge. As stated in the M1 Manual, "water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers."Raftelis follows industry standard rate setting methodologies set forth by the AWWA M1 Manual to ensure that the results of this Study align with Proposition 218 requirements and create rates that do not exceed the proportionate cost of providing water service. 1.5.2.CALIFORNIA CONSTITUTION -ARTICLE X, SECTION 2 Article X, Section 2 of the California Constitution states the following: It is hereby declared that because ofthe conditions prevailing in this State the general welfare requires that the water resources ofthe State be put to beneficial use to the fullest extent ofwhich they are capable, and that the waste or unreasonable use or unreasonable method of use ofwater be prevented, and that the conservation ofsuch waters is to be exercised with a view to the reasonable and beneficial use thereofin the interest ofthe people andfor the public welfare." 1 Raftelis does not practice law,nor does it provide legal advice.The above discussion provides a general overview of Raftelis'understanding as rate practitioners and is labeled"legal framework"for literary convenience only.The City should consult with its legal counsel for clarification and/or specific guidance. WATER AND RECYCLED WATER RATE STUDY REPORT 3