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1 <br />2 <br />3 <br />4 <br />5 <br />6 <br />7 <br />8 <br />9 <br />10 <br />11 <br />12 <br />13 <br />17 <br />18 <br />19 <br />20 <br />21 <br />22 <br />23 <br />24 <br />A. <br />necessary costs of service, including a fair rate of return <br />on the net valuation of its properties under efficient and <br />economical management and the County is correspondingly required <br />to fix just, reasonable and compensitory rates. Would you please <br />provide us with.a general framework in which to view the <br />financial exhibits submitted in this rate case? <br />Yes, Ms. Roen. The function of the financial exhibits in this <br />case is to prove the need for and show the effect of the rate <br />increase sought in this application. My testimony and the <br />primary financial exhibits will be addressed in the following <br />five (5) steps: <br />1. Determine the amount of investment in property, plant and <br />equipment used in providing service to the customers. This <br />is called the rate base. <br />2. Determine the total expense to operate the utility system <br />in a typical year. This is called the test year. <br />3. Determine the amount of return on investment which is <br />reasonable. This is done by a cost of capital analysis. <br />4. By employing the amounts determined in steps 1, 2 and 3, <br />the total amount of revenues to be collected from the <br />customers can be determined. <br />5. Using the billing history actually experienced during <br />the test year, a rate structure is formulated which <br />will produce the total revenues determined in step 4. <br />-3- <br />1 . , <br />4qK <br />1,4910 acF 4 <br />DEC 111979 <br />