Item 08 - Water and Sewer Rate Adjustments

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3.2 Cost of Service Analysis The purpose of a Cost of Service (COS) analysis is to allocate costs among customers commensurate with their service requirements. RDN employed the "commodity -demand" cost -of -service method promulgated in AWWA's M1, whereby costs are first allocated to individual functions, which are typical industry standard activities, then the costs of each function are distributed to appropriate cost causative components, which are defined by the cost driving elements. Figure 7 displays a typical process for the COS analysis. Figure 7. A Typical Flow for Cost of Service Analysis Process Functionalization of Costs Operating and capital costs are functionalized based on operating categories used in the City's budget and input from City staff with expertise on the system and utility industry knowledge. The functionalization of non -operating expenses is based on total water asset values, which represents a better overall estimate of systemwide needs versus just one year of capital expenditure. The non -operating expenses for the test year are made up of debt service payments and capital expenditures totaling approximately $6.7 million. The functions of the water system for both operating and non -operating expenses include: • Water Supply — costs associated with water procurement and purchases • Groundwater — costs associated with groundwater procurement • Storage — costs associated with water storage for distribution • Transmission and Distribution — costs associated with transmitting and distributing water to customers • Pumping — costs associated with general pumping and energy use • Treatment — costs associated with treating water City of Santa Ana - 2026 Water and Sewer Rate Study 27