R97-17 AUTHORIZING AGREEMENT - ECONOMIC AND ENGINEERING SERVICES, INC.

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• � Attachement A In developing classes of service for cost of service purposes, customers are � generally grouped together into classes of service based upon their usage i characteristics, facility requirements and any other considerations which may segregate them from other customers. As an example, the City has , noted within their request for proposal that two customers consume ' approximately 67% of all water consumed on the system. This probably indicates the need to separate these two customers out as individual i, customer classes of services. This is an important decision in the cost of service process since this determines the level of cost detail, by class of service, that the City will review. EES will discuss this issue with City staff to determine the appropriate classes of service for cost allocation purposes. � Once the classes of service have been determined, the process of developing allocation factors is usually a simple process. The exception is in the development of the capacity allocation factor. The capacity allocation factor is used within the water rate study to allocate capacity (system peak usage) related costs. While each customer's total consumption is a known and measured item, their contribution to peak period events is typically not measured. Therefore, two alternative methods can generally be used to develop capacity allocation factors. The first method utilizes meter sizes to determine a maximum flow for each individual customer, and ultimately for each class of service. The alternative approach is to attempt to "tie back" to the City's peak day flow, utilizing peaking factors for each class of service. Both of these methods will be reviewed for data availability, and the appropriate approach will be used. In addition, for the large industrial customers, their contracts will be reviewed for capacity issues to assure a proper allocation of capacity costs in relation to their contracts with the City. Given the development of the above allocation factors, the remaining allocation factors are fairly simple and straightforward to develop. 1.4.6 Allocation of Rate Base and Expenses Given the development of all the allocation factors, the final task is to ' allocate the rate base and ex enses to each class of service. From this P process, a summary page for the water cost of service study is provided. The summary page for each study compares the difference between the current level of rate revenues received from each class of service, and the allocated cost of service for each class. From this information, a determination can be made as to whether it appears appropriate to move to separate classes of service for rate design purposes and also the level of rate adjustments that is required to have each class of service pay their appropriate share of the utility's costs. Scope of Services 1-9