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• • Attachement A <br /> their specific concerns and the issues to be addressed by the consultant. This <br /> meeting assures that both parties are made aware of the specific issues to be <br /> addressed, the approach to be taken and the limited resources and time available to <br /> meet these needs. <br /> It is proposed that a 1/2 day session be held which would begin with a short <br /> overview by the Consultant as to the general procedures and methodology to be <br />' used in the rate study, and then a discussion of City specific issues and data <br /> requirements. The meeting would conclude with a discussion of any project <br /> administrative issues. <br /> 1.3 Development of the Water Revenue Requirements <br /> The first step in the rate study process is development of the water revenue <br /> requirements. This portion of the study entails reviewing the various sources and <br /> applications of funds for the water utility. A more detailed discussion of the various <br /> tasks associated with developing revenue requirements is provided below. <br /> 1.3.1 Selection of Test Period and Method of Accumulating Costs <br /> The first step in the development of the water revenue requirements is the <br /> selection of a "test period" and a method of accumulating costs. A "test <br /> period" refers to a time frame of reference for the accumulation of costs and <br /> consumption data. It is usually recommended that a projected or future test <br /> period be used for rate setting. In using the future test period approach, the <br /> City's budget can be used as a basis, or starting point for projected operation <br /> and maintenance costs. In addition, the City's future capital plans can be <br /> included to provide a measure of the rate impacts of these plans. The major <br /> advantage of using a future test period approach is that the proposed rates <br /> are matched to the expected costs for that period. This matching of price to <br /> cost is a particularly important point, since costs change over time and using <br /> historical costs may set rates artificially low. This is particularly true in the <br /> case of the City where significant capital expenditures will have a direct <br /> impact upon future rate levels. <br /> It is suggested that revenue requirements be reviewed for a minimum of five <br /> years, depending upon the timing and size of the City's capital expenditures. , <br /> The idea behind projecting forward is to anticipate any large adjustments <br /> that may be needed in the future and attempt to plan around these large , <br /> adjustments. This may take the form of a "phasing-in" of rates or adjusting <br /> capital projects to make a smoother transition. EES will review the City's � <br /> information and determine an appropriate length of time period to review. <br /> Scope of Services 1-2 <br />