75A - PH - WATER AND SEWER RATES

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2019 Water, Recycled Water, and Sewer Rate Study 3. Cost -of -Service Analysis 3. COST -OF -SERVICE ANALYSIS The Cost -of -Service Allocation (COSA) analysis is intended to evaluate the cost of providing water, sewer and recycled water service, and to allocate those costs to respective customer classes and rate structure components to ensure the proposed rate structure is aligned with costs to provide such service. This is done in order to be equitable among the City's ratepayers and to comply with Proposition 218, which requires water rates to be proportionate to the cost of providing water service. This Study employed well - established industry practices as recognized by the AWWA, WEF, and other accepted industry standards. The following section presents a detailed description of the COSA methodology and corresponding results. The water and recycled water rate study employed a method that is consistent with the "commodity - demand" COSA methodology promulgated in AWWA's Manual M1: Principles of Water Rates, Fees, and Charges (M1). With this approach, costs are functionalized to system activities, allocated to two functional categories: Source of Supply Costs and Utility Costs, and then distributed to different customer classes based on their usage behavior. Unit costs are then used to distribute system costs to the various components of the rate structure (see Section 4). Similarly, the sewer rate study followed principles promulgated in WEF's Financing and Charges for Wastewater Systems, Manual of Practice No. 27 and allocated to two functional categories: Account Costs and Utility Costs. 3.1 PROCESS Both the water and sewer COSAs were conducted based upon the City's FY 2019/20 annualized expenditure and revenue requirements per the RSA. The water COSA included the steps illustrated in Figure 3-1. Likewise, the sewer COSA included the steps illustrated in Figure 3-2. City of Santa Ana Stantec 117