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DRAFT 4.21.25 <br />Fixed vs. Variable Costs <br />What are Fixed Costs? <br />•Fixed costs are costs that do not vary with water consumption <br />•For the City, these costs include Zone 7 fixed costs, personnel/maintenance expenses, etc. <br />•Generally, most costs to operate a water utility are fixed (except for supply and utility costs) <br />Zone 7 Water Supply Cost Structure <br />•City currently has no available groundwater supplies and purchases all water from Zone 7 <br />•Zone 7 charges the City a fixed charge and a variable charge <br />•Zone 7 costs make up over 70% of the City’s potable water operating expenses <br />13 <br />DRAFT 4.21.25 <br />Fixed vs. Variable Revenue Recovery <br />Fixed vs. Variable Revenues and Expenses <br />•Most water utilities typically have higher fixed costs than fixed revenue recovery <br />•Current Zone 7 fixed charges only recover approximately 32% of all Zone 7 fixed costs <br />•Prior to the last rate study, the City did not collect any Zone 7 fixed charges <br />Increasing Fixed Revenue Recovery Percentage <br />•Benefits: increase revenue stability, better align revenues with cost structure, reduces <br />financial risk associated with Zone 7 fixed costs <br />•Challenges: greater impact to low water use customers. <br />14 <br />Page 223 of 249