Utility Committee Agenda and Packet 2019 03 15

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1.7. Reclaimed Water Rates Many utilities set reclaimed water rates based on policy considerations instead of pure cost of service. When a pure cost of service approach is used, the resulting calculated reclaimed water rates are often in excess of potable water rates because of the high cost of building reclaimed water transmission and distribution systems relative to the low level of reclaimed water demand on most systems. For this reason, policy makers frequently choose to ignore cost of service and set reclaimed water rates at a level they believe will enhance the market penetration of reclaimed water. Additionally, a reclaimed rate less than the potable rate often can be justified based on the avoided cost of new water supplies. The City's proposed reclaimed water rate is a policy -based rate set between two specific benchmarks. The high -end benchmark (the reclaimed water rate ceiling) is the weighted average cost of providing potable water service across all customer classes. The low -end benchmark (the reclaimed water rate floor) is the weighted average cost of providing water service after the elimination of all treatment -related costs. Treatment costs can be eliminated because once discharged from the wastewater treatment plant, the costs associated with providing reclaimed water service can be estimated based on non -water treatment activities such as pumping, transmission, and distribution. Table 1-14 shows the development of the reclaimed water rate for the two benchmarks The reclaimed water rates for the high -end and low -end benchmarks are $4.50 and $2.52 per thousand gallons, respectively. 13