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Reserves. Closely related to this analysis is an examination of adequacy of reserves for operating and capital projects. Adequate reserves are fundamental to achieving financial stability, and can help some systems to avoid sudden or disruptive rate adjustments in the face of unanticipated operating or capita needs. We will examine each enterprises' fund balances and incorporate these balances and alternative reserve policies into the interactive planning process and the conversations we will have regarding financial sustainability. Stantec will work interactively with City staff to validate our financial planning findings during a Financial Planning Validation Workshop. Task Il.b - Cost of Service We identify the most appropriate Prop 218-compliant cost -of -service allocation methodologies and rate structures based upon available data, legal requirements, system configuration, service agreements, resources, customer base, demand and usage characteristics, local practice, and public policy objectives. We then customize the cost allocation module to employ the identified methodologies and concepts best suited for each utility system. We will evaluate the behavior of various customer classes and discuss option, as appropriate, of adding a customer class or combining existing customer classes. At the conclusion of the cost allocation portion of the analysis, we compare the resulting allocation of revenue requirements to the revenue generated by the current rates for each customer class. To the extent current revenue recovery levels are not in line with the results of the cost of service allocation analysis, we evaluate alternative levels of revenue recovery by class of customer within the rate structure analysis that would better comport with the identified cost of service allocations. Stantec will work interactively with City staff to validate our cost of service findings during a Cost of Service Workshop. Task Il.c - Rate Design We will review of the City's current rate structures and collaborate with City staff to understand the options of alternative rate structures. The rate structure will be evaluated (including a review and analysis of current block sizes and seasonal rate differentials) to determine if they may better serve the City's fiscal stability and/or public policy objectives relating to fixed cost recovery, economic development, and affordability, while ensuring a fair and equitable distribution of costs, and conformance to accepted industry practice, legal precedent, and terms of any service agreements. As part of this effort, we will be evaluating the distribution of costs between the fixed and variable components of the rate structure, and will make recommendations that are consistent with your cost recovery objectives. In addition to standard rates, Stantec proposes to develop a drought rate schedule for the City. Drought rates are alternative rate schedules that are adopted and then implemented in the event of a drought (as declared by City Council). Drought rates are a powerful tool against revenue shortfalls during droughts. Interestingly, drought rates don't always involve a change in the unit rate for water, but rather sometimes the adjustment is to the allocation of water for various tiered rates. City of Santa Ana, California I Water and Sewer Enterprise Cost of Service Study Stantec 9