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• • • 1. Executive Summary 1.3.2 Cost of Service Analysis Stantec performed a cost -of -service analysis that allocated IRCDUS' costs between its water and sewer' systems to determine the level of alignment between the revenues generated from each system and the costs that are incurred to provide each service. Figure 2 presents a summary of FY 2025 costs compared to revenues for the water and sewer systems. Figure 2 - Water Costs vs. Revenues $30 ----_______._.$ B - $28.1 $25 u, $20 C: : $15 $10 $5 $0 Water Sewer ■ Cost ■ Revenue Upon implementation of the higher sewer rate adjustments, the revenues and costs for each system are better aligned. Cost of service studies reflect the analysis of conditions during a test year, selected to provide a normalized set of circumstances, regarding key factors including operating and capital costs. Because cost of service studies reflects the influences of changing technologies, operating costs, regulatory requirements, system investment, and customer behavior, the results tend to change over time and as such, should be conducted periodically. As a result, this level of cost recovery across each system is within acceptable ranges based on Stantec's industry experience. After costs were allocated between the water, sewer, and reclaimed water systems, costs were allocated to the functional components that make up the water and sewer systems to inform the calculation of rates for specific service including bulk water and sewer rates, private fire protection services, and septage and sludge rates. The proposed rates for these other user rates are summarized in Table 2 and should be implemented in FY 2025 and increased with the proposed rate indexing of 12.0% in FY 2026. ' Reclaimed water for IRCDUS serves primarily as a means for effluent disposal and therefore its associated costs and revenues are included as sewer for purposes of this analysis. a 5