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2017 Water Cost of Service: <br />The cost breakdown between the commercial accounts (multi -family, commercial and irrigation) <br />is calculated by the COS and is a theoretical representation. To improve the comparison, the <br />commercial accounts were combined as a single figure to match how actual revenue is compiled <br />and reported. Below are the results of the cost of service analysis based on 2017 data for <br />residential and commercial groups. <br />Residential Projections <br />Annual <br />Revenue <br />% of Change from Actual <br />(Total Revenue) <br />2017 Actuals <br />$3,387,638 <br />58.8% <br />($5,756,498) <br />2017 Cost of Service <br />$3,237,664 <br />53.8% <br />(6,018,828) <br />-4.4% (-$149,974) <br />2017 Cost of Service (Adjusted) <br />$3,504,946 <br />58.2% <br />($6,018,828) <br />3.5% ($117,308) <br />Commercial Projections <br />Annual <br />Revenue <br />% of <br />(Total Revenue) <br />I Change from Actual <br />2017 Actuals <br />$2,368,860 <br />41.2% ($5,756,498) <br />2017 Cost of Service <br />$2,374,872 <br />39.5% (6,018,828) <br />0.3% ($6,012) <br />2017 Cost of Service (Adjusted) <br />$2,513,882 <br />41.8% ($6,018,828) <br />5.7% ($145,022) <br />The overall shortage in total revenues between actuals and calculated COS is attributable to the <br />generalization and assumptions within the COS calculations. An example of one of the <br />assumptions would be a new home being built in October. Actual revenues would only be <br />received in November and December, whereas the COS assumes this account would generate <br />revenue for the whole year. Sensitivity analysis of the COS, shows that the percentage of total <br />revenue is constant and independent of total revenue. As a result, the percentage of total revenue <br />provides the best validation for a COS analysis. <br />The 2017 COS shows a deviation of approximately 0.6% ($36,100) between actuals and the <br />adjusted COS percentage of total revenue. This translates to a 0.6% overage in the single-family <br />residential class and a 0.6% underage in the commercial class. This 0.6% variance is well within <br />a standard margin of error and would indicate that the class equity is being maintained <br />Therefore, future rate adjustments based on COS are not necessary. <br />Utility Financial Review and Rate Setting Plan — Steps: <br />1) Confirm high level Cost of Service Review <br />la) Review Cost of Service Customer Classes <br />(i.e. Commercial vs Commercial with Outdoor) <br />2) Rate Design <br />3) Financial Policies <br />4) Budget / CIP 2020 <br />5 & 6) Proposed Rate Adjustments for May 1, 2020 <br />o <br />L <br />13 <br />