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City of Everett 12020 Water,Filtration,Sewer,and Stormwater Rate Study EN <br /> 1.Project Approach <br /> • An electronic copy of the rate model with the updated revenue requirement analysis for <br /> each utility. <br /> Task 4: Cost of Service Analysis <br /> A cost of service analysis differs from a revenue requirement analysis in that a revenue <br /> requirement analysis reviews the overall adequacy of a utility's rate revenues, while a cost of <br /> service analysis equitably allocates the revenue requirement of a utility to the various customers <br /> served by the utility. The cost of service provides a defensible basis for proportionally assigning <br /> costs and establishing "cost-based and equitable" retail and wholesale rates which reflect each <br /> customer group's unique facility requirements and the demands that they place upon each <br /> system. <br /> For this task, a water and sewer cost of service analysis will be developed. The cost of service <br /> analyses developed for each utility is different and unique. Given that, a detailed discussion of <br /> each utility is provided below. HDR is not proposing any changes in the overall methodology <br /> which was used as a part of the last comprehensive rate study. HDR will use the same <br /> methodology and update the analysis using 2021 costs. <br /> Water T&D—The water utility's costs are segregated between transmission &distribution (T&D) <br /> and filtration. The revenue requirement for water T&D is separate and distinct from filtration. <br /> The water T&D cost of service analysis will perform three distinct functions with the data; <br /> functionalization, allocation, and distribution. The water T&D costs are functionalized based <br /> upon accounting codes(e.g., pumping, transmission, storage reservoirs). The functionalized <br /> data is then allocated into the cost components of commodity, demand, storage, pumped water <br /> volumes and number of connections. These allocated costs are equitably distributed to <br /> individual customers and then summarized into the following customer groups: <br /> ✓ City and City Metered <br /> ✓ Alderwood' <br /> ✓ West of River= Mukilteo+ Silver Lake2 <br /> ✓ East of River= Marysville+ Other Wholesale + Monroe + PUD <br /> A summary page of the cost of service for the water T&D indicates the cost responsibility of <br /> each of the major customer groups(City, West of River and East of River). <br /> Water Filtration —Water filtration costs are a separate set of costs from the Water T&D costs. <br /> At the same time, the water filtration cost of service methodology is much different from the <br /> Water T&D cost of service methodology. In the case of water filtration, Alderwood has a <br /> specific formula for filtration charges. Alderwood's formula requires the use of historical (actual) <br /> data. There is a specific formula for the calculation, but in very simplified terms, it is essentially <br /> a "cash basis" calculation which includes Alderwoods proportional share of the costs of O&M, <br /> debt service and capital costs for filtration. Given that historical costs must be used, this study <br /> will not be able to calculate the Alderwood filtration costs for the projected years of 2021 —2024. <br /> 1 The cost allocation for Alderwood is not relevant in that their cost responsibility, in accordance with their <br /> wholesale agreement, is determined(calculated)each year and based upon their actual usage. <br /> 2 As a part of the last rate study,the West of River customers were incorporated into the City's <br /> Commercial/lndustrial/Governmental water T&D rate,to which a 20%rate multiplier is added. For cost of <br /> service purposes,this study may separate this class of customer out to assess the appropriateness of <br /> incorporating them into the City's rate. <br /> Page 4 <br />