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Page 4 of 8 maintain chlorine residual in system • Energy costs – electricity needed to pump and move water through the system • Operations and maintenance – daily upkeep of the water distribution system • Regulatory compliance – testing, monitoring, and reporting to comply with state and federal drinking water requirements • Conservation programs – programs designed to reduce water use and manage drought response. Fixed charges (sometimes called service charges, base charges, or meter charges) represent the portion of a water bill charged to the customer that is independent of their consumption. Fixed charges are based on meter size (larger meters equate to higher fixed charges due to capacity demands) and provide stable revenue to the utility, which is especially important during periods of reduced water consumption. City water customers have two fixed charges: City fixed charges related to delivery of water to customers, and Zone 7 fixed charges related to City water supply purchases from Zone 7. The City’s fixed charges cover meter costs (i.e., meter maintenance, reading, and repair and replacement) and customer service and billing costs. Zone 7’s fixed charges are determined by Zone 7. The City’s current water rate structure only charges customers 32 percent of the Zone 7 fixed costs as a fixed charge, with the remaining percentage converted and added to the consumption-based variable charge. To maintain the financial stability and sufficiency of the water enterprise and reduce risk to the City in periods of reduced water demand, City staff and the City's Water Advisory Group (PWAG) recommend proceeding with 100 percent fixed charge recovery of Zone 7 fixed costs in its rate structure. The disadvantage of this recommendation is that it has the most impact on the lower water usage customers as this fixed charge will no longer be discounted by shifting to consumption-based variable charges. As an alternative to the recommendation, WRE also evaluated a 75 percent fixed charge cost recovery scenario. A comparison of the two scenarios is discussed below. Preliminary Rates The attached technical memorandum presents the rate design analysis and the resulting preliminary rates for both the recommended and alternative scenarios, including a comparison with neighboring water agencies. The major findings are presented below. 1. 100 Percent: Under the recommended scenario of 100 percent fixed charge recovery of Zone 7 costs, year 1 Single Family customer bi-monthly water bills will be impacted as follows: Page 206 of 249