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BCWWA – Designing Water Rates

Karyn Johnson, FCS Group presents “Design water rates
to reflect cost of service and water sustainability”

Cost of Service Rate Analysis

  • Revenue Requirements –
    Defining overall needs
    • Multi year financial
      • Cash Reserves
      • System Reinvestment
      • O&M costs
      • Capital Regulated
    • Used to allocate
      costs to users of the system
    • Forms the basis for
      rate design
    • Used to ensure 100%
      of the costs are allocated.
  • Cost of Service – Equity
    • Pressure to ensure
      that rates are fair
    • Customers are becoming
      more sensitive as rates have increased
    • System Costs:
      • Regulatory
      • Sustaining adequate
      • System replacement
      • Inflationary
    • Define Utility
      Functions – Service Components (Peak Day etc.)
      • Fire protection
      • Meters
      • Customer
      • Base demand
      • Peak demand
    • Define plant
      components/classify. Why is it needed? Why did we incur this expense? How
      did you determine the size? How is the asset used/operated? Allocate
      percentages of original cost to Average/Peak/Fire Protection and
      • Source of Supply /
        Supply treatment – Ration of Peak Day to Average Day Demand.
      • Transmission
        distribution – Portion of the mains are designed to fire protection;
        remainder to peak/average demand.
      • Storage –
        operational, equalization, emergency, fire suppression etc.
      • Hydrants – Fire
      • General
      • Costs can be
        directly assigned if benefit is to only one customer or group of
      • Not all customers
        use the system in the same way – system costs should not be recovered
        uniformly from all customers…
    • Define Customer
      Classes –
      • What makes customer
        classes distinct?
        • Distinct service
        • Usage levels
        • Usage patterns
        • Seasonality of use
        • Strength of
        • Location
        • Type of user –
          land use
      • Common Customer
        • Single Family –
          largest customer, low usage per dwelling unit, but high peaking, lowest
          fire flow requirements
        • Multifamily –
          lower usage than SFR (70%), relatively constant year-round, fire flow
          between SFR and Commercial.
        • Commercial –
          Varies depending on business, but relatively constant year-round,
          highest fire flow requirement.
        • Government
        • Industrial
        • Wholesale
        • Parks and
          Irrigation – no fire flow requirement, small customer class, peak usage
          in peak season.
    • Develop Unit Cost per
  • Rate Design – Collecting
    the Target Revenues
    • Target revenue levels
    • Cost-based
    • Need to reflect policy
      objectives such as conservation and revenue stability
    • Customer
    • Administrative

Mike Thomas

Mike Thomas P.Eng. ENV SP, is the author of and Director of Engineering at the City of Revelstoke in the Interior of British Columbia, Canada. If I post something here that you find helpful as you navigate the world of engineering, planning and building communities, that’s wonderful. But when push comes to shove: This is my personal blog. The views expressed on these pages are mine alone and not those of my employer.