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METHODOLOGY <br />2.1 General Methodology <br />The Water and Sewer rates were developed using requirements set forth in article XIII D, Section 6 of <br />the California Constitution. Where appropriate and to the extent consistent with the California <br />Constitution, RDN looked to guidance provided by principles set forth by the American Water Works <br />Association (AWWA) and the Water Environment Federation (WEF). RDN rate -making practices <br />incorporate methods described in the AWWA Manual 1 (M1)' for Water Systems and the WEF Financing <br />and Charges for Sewer Systems2 wherever possible. Figure 2 presents the steps taken to develop the <br />City's proposed rates. <br />Figure 2. Water and Sewer Rate Study Process <br />Cost of Service <br />• Financial Planning and Revenue Requirements: develop a ten-year financial plan based on the <br />projected revenues and annual costs which include operating, debt service, and capital expenses. <br />The City's target reserve level should also be considered as part of the financial planning. Based on <br />the financial planning, revenue requirements are determined for each year of the study period. <br />• Cost of Service: evaluate the customer classifications and allocate costs based on their service <br />requirements. <br />• Rate Design: design rates to equitably recover the rate revenue requirements from each customer. <br />1 Principles of Water Rates, Fees, and Charges, Seventh Edition, Manual of Water Supply Practices, American Water Works <br />Association <br />2 Financing and Charges for Sewer Systems, WEF Manual of Practice Number 27, Water Environment Federation <br />City of Santa Ana - 2026 Water and Sewer Rate Study 10 <br />