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3. Cost of Service 3. COST OF SERVICE As part of the Study, Stantec performed a cost -of -service analysis to evaluate IRCDUS' current cost recovery between utility systems, develop updated bulk service rates, determine cost -based fire protection charges, calculate costs associated with accepting and disposal of septage and sludge, and determine the current cost to provide reclaimed water service. The cost allocation analysis isolates the costs of the water and sewer systems and then determines the portion of those costs allocable to each respective system function. From there, Stantec identified the system functions and corresponding costs that would be utilized in the calculation of updated bulk user rates, fire protection charges, septage and sludge fees, and interruptible reclaimed water service to golf courses. The following sub -sections present the procedures and results the cost -of -service analysis while Appendix B presents the supporting schedules. 3.1 APPROACH Stantec used the FY 2025 revenue requirements developed in revenue sufficiency analysis (described in Section 2) as the test year for the cost -of -service analysis. Each expenditure was allocated between the water and sewer systems. Certain costs and departments in IRCDUS' budget are directly assigned to a particular service(s) based on their function (i.e., costs directly accounted for within IRCDUS' Water Production Department are allocated directly to the water system, while other departments and associated • costs like Customer Service need to be allocated to each respective utility service. Allocations of test year • revenue requirements between systems are presented on Schedule 3 of Appendix B. Each cost identified as a water system cost was then allocated between treatment, transmission, distribution, and customer functions. The sewer system cost requirements were allocated between customer, conveyance/collection, and treatment's functions. Where possible, costs were directly assigned to specific functions. For example, the Wastewater Collection Department was allocated to the conveyance/collection function. Where costs supported more than one function, Stantec identified proper allocation criteria to apportion the cost to the appropriate system functions. For example, Water Distribution costs were allocated between the transmission and distribution functions based on an inch -feet analysis of IRCDUS' identified transmission and distribution mains. The functional allocations by system are provided in Schedule 4 and Schedule 5 of Appendix B for the water and sewer systems, respectively. '$ Including disposal and reclaimed water. 20 •