Considering the Basics of Costs of Service.

This article discusses the process of conducting a comprehensive rate study in the water industry, specifically focusing on the cost of service analysis. The cost of service analysis involves understanding the costs associated with providing water service and allocating those costs to appropriate customers. By grouping customers into classes based on common usage characteristics, water utilities can distribute costs in proportion to each user's respective use of the system. This ensures that rates are fair and that no class of customers is subsidizing another. The article outlines a standard approach for conducting a cost of service analysis, including categorizing revenue requirements, allocating functional costs, developing units of service, and deriving the unit cost of service for each customer class. The results of the analysis allow utilities to determine the specific revenue requirements for each component of their water system and create a comprehensive rate structure that ensures all customers pay their fair share. [Extracted from the article]