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� • Attachement A <br /> Given a time frame of reference, the next decision is to determine the basis or <br /> method of accumulating costs. �vo choices for accumulating costs are <br /> available to the City, the "cash" or "utility/accrual" basis. Table 1-1 provides <br /> a simple comparison between these two methodologies. <br /> Table 1-1 <br /> Cash vs. Utility Basis Comparison <br /> Utility/Accrual Basis Cash Basis <br /> + O&M Expense + O&M Expense <br /> + Taxes + Taxes or Transfer Payments <br /> + Annual Depreciation Expense + Capital Projects Financed with <br /> Rate Revenues(Deprec. Exp.) <br /> + Return on Rate Base (Investment) + Debt Service (P+I) <br /> = Revenue Requirement = Revenue Requirement <br /> The "cash basis" is as the name implies. It is based upon the cash flow <br /> requirements of the utility — both operating and capital. In contrast, the <br /> "utility/accrual basis" is most commonly associated with private investor- <br /> owned water utilities, and is recognized by the inclusion of a "fair" return on <br /> rate base (net plant investment). In practice, the "cash" basis approach is <br /> most commonly used by publicly owned water utilities. This is the approach <br /> which would be recommended for this study. As can be noted above, the <br /> "cash basis" approach sums the City's operation and maintenance expenses, <br /> taxes/transfer payments, debt service and capital expenditures funded from <br /> rates (cash). <br /> 1.3.2 Accumulation of Revenues and Expenses <br /> The next step in the development of the revenue requirements is the <br /> accumulation of revenues and expenses. Given the test period, EES, in <br /> conjunction with City staff, will develop the test period revenue <br /> requirements. The operational costs for the utility are most likely comprised <br /> of source of supply and treatment costs, other operation and maintenance <br /> expenses, taxes/transfer payments, any applicable debt service, and capital <br /> expenditures financed with cash or rate revenues. <br /> 1.3.3 Review of the Impact of Capital Expenditures <br /> In developing the revenue requirements, particular attention will be paid to <br /> the projection of capital expenditure funding levels and their subsequent <br /> sources of funding. The City within their request for proposal has indicated <br /> that a significant level of expenditures are planned in the future. Given the <br /> potential impact of these capital expenditures, emphasis will be placed upon <br /> Scope of Services 1-3 <br />