2008 Water Rate and Fee Study - Lake Havasu City

Section 5Cost-of-ServiceCity’s water system. This indicates that 62 percent of the capacity of facilities designedand operated for maximum day demand is needed for average or base use. Accordingly,the remaining 38 percent is for maximum day extra capacity requirements.Since maximum hour water usage also utilizes facilities designed and operated foraverage day and maximum day demands, the costs associated with meeting maximumhour demands are allocated to base, maximum day extra capacity, and maximum hourextra capacity. Based on the system design criteria, a ratio of maximum hour to annualaverage day water use of 2.50 is assumed. This ratio indicates that approximately 40percent of the capacity of facilities designed and operated for maximum hour demand isneeded for average or base use, 24 percent is required to meet maximum day extracapacity demand, and the remaining 36 percent is for maximum hour extra capacitydemand.5.2.3. Allocation to Functional Cost ComponentsVarious functions are involved in providing safe, on demand potable water to customers.Functional costs apply to both operating and capital costs. The City tracks and distributesoperating costs to the following functions:• Treatment• Distribution• Production• Meters & Services• Administration• Water Overhead• Direct RevenueRed Oak grouped existing assets into similar functions for the cost-of-service analysis.Once operating and capital facilities are organized by function, the functional costs areallocated among service demand categories based on the service provided (e.g., treatmentfacilities and costs are sized based to provide treated water under maximum dayconditions) and summarized in pages B - 6 through B – 8.Revenue requirements are generally allocated to the functional cost components andthese functional costs are then allocated among service categories that reflect the designparameter of the associated facility. For example, treatment facilities are related to thefacilities that provide treated water to the City’s customers. These facilities are designedto meet average and maximum day demands. Thus, treatment expenses are allocated tothe base and maximum day cost components. In similar manner, production expenses areallocated to base, maximum day, and maximum hour cost components based on thedesign parameters related to maximum hour demand requirements.Lake Havasu City2008 Water Rate and Fee Study49440145-2