Item 08 - Water and Sewer Rate Adjustments

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4.2 Cost of Service Analysis and Rate Design In the same way as the water system's Cost of Service analysis was performed, a sewer system's COS analysis also utilizes a three -step approach to allocate costs proportionally among different customers. These steps include 1) functionalization of costs, 2) cost classification, and 3) cost allocation to customers. Provided below is a detailed discussion of the sewer COS analysis conducted for the City, and the specific steps taken for the analysis. Figure 11. A Typical Flow for Cost of Service Analysis Process Functionalization of Costs To allocate the cost of service among the different customer classes, costs first must be allocated to the appropriate sewer parameters. The following sections describe the allocation of the operating and capital costs of service to the appropriate parameters of the sewer system. The total cost of sewer service is analyzed by system function in order to equitably distribute costs of service to the various classes of customers. For this analysis, sewer utility costs of service are developed consistent with the guidelines for allocating costs detailed in the Water Environment Federation (WEF) Manual of Practice No. 27, Financing and Charges for Sewer Systems. A cost of service analysis distributes the revenue requirements (costs) to each customer class. After determining the revenue requirements, the next step is to functionalize the O&M costs based on the City's O&M classification: Fixed - costs that do not vary with flow or strength, such as routine system -wide operations and maintenance • Sewer Service - costs that are incurred for customer service related tasks City of Santa Ana - 2026 Water and Sewer Rate Study 56