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<br /> <br /> <br />2 OF 2 <br /> <br />• Cost functionalization: Operating and capital costs are evaluated and assigned to <br />“functional categories” in the water system (e.g., customer service, groundwater wells, <br />distribution, etc.). This provides a proportional breakdown of system costs by functional <br />category. <br />• Revenue requirement allocation to cost causation components: Functionalized costs <br />are allocated to “cost causation components” (e.g., water supply, base delivery, max day <br />delivery, etc.), which is used to attribute customers’ use of the system to the City’s <br />incursion of costs. <br />• Unit cost development: The rate revenue requirement allocation for each individual cost <br />causation component is divided by the appropriate units of service to establish unit costs <br />for the test year. Unit costs provide the basis from which proposed rates are calculated. <br /> <br />By following the AWWA cost-of-service principles and methodology, the City ensures that <br />water rates are equitably distributed based on actual service costs, promoting fairness and <br />financial sustainability within the water utility system. <br />