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� � Attachement A <br /> "credit" to the customer for their capital contribution is provided within the <br /> analysis by deducting contributed capital (contributions in aid of <br /> construction) from the rate base (net plant investment) calculation. In other <br /> words, the City should not earn a return on plant that was contributed by its <br /> customers. <br /> For the two reasons stated above, the City needs to carefully select the <br /> costing methodology for this portion of the study. This is an important issue <br /> in regard to the perceived fairness and equity of the final results which are <br /> derived from the study. <br /> 1.4.3 Functionalization of Rate Base and Expenses <br /> The functionalization of costs is the first manipulation of costs. <br /> Functionalization refers to the arrangement of cost data into its basic cost <br /> categories. For the water utility, these are typically, source of supply, <br /> treatment (purification), transmission, distribution, customer services and <br /> accounting, and administrative and general (A&G). This task is simplified <br /> greatly through the use of a uniforxn system of accounts. Both rate base (net <br /> plant investment) and expenses will be functionalized in this process. The <br /> City's specific system of accounts will be used to complete this process. <br /> 1.4.4 Classification of Rate Base and Expenses <br /> Given the functionalized rate base and expenses for the utility, the next step <br /> in the process is to classify these items to their various cost components. The <br /> classification process involves determining whether each specific cost or <br /> account item was incurred to meet a consumer's capacity, commodity, fire <br /> protection or customer related needs. The classification process reviews the <br /> "cost causation" nature of each expense incurred by the utility. While the <br /> basic cost components noted above are the cornerstone of each analysis, they <br /> are by no means the only cost components to be utilized. A thorough review <br /> of the various types of costs that the City incurs will be undertaken and <br /> specific cost classifiers developed. <br /> 1.4.5 Development of Allocation Factors <br /> The final analytical process involved in the development of the water cost of <br /> service study is the allocation of the classified rate base and expenses to each <br /> of the customer classes of service. The first issue which will be a need <br /> addressed within this task is the determination of the appropriate classes of <br /> service for cost allocation purposes. <br /> Scope o f Seruices 1-8 <br />