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3. Cost of Service 0 3.2 RESULTS 3.2.1 Costs and Revenues by System Revenue requirements for the water and sewer systems include total operating and capital expenditures, funding of reserve accounts, and cash funding of capital expenditures. IRCDUS' revenue requirements compared to revenues for FY 2025 by system are summarized in Table 9. Table 9 - FY 2025 Cost Allocation Summary19 Description Revenue Costs $ Variance Water $28.1 M $26.6M $1.5M Sewer $25.2M $26.7M ($1.5M) The test year revenue requirements revealed a subsidy from the water system to the sewer system (i.e., water system revenues are over -recovering the cost of service and sewer revenues are under -collecting). As such, Stantec incorporated the results into the recommended rate adjustments in FY 2025 discussed in Section 2, with sewer rate increases set higher than water rate increases to better align costs and revenues by system. • Cost of service analyses reflect a specific point in time of "normalized" conditions which are subject to changes in costs and customer demands over time. Upon implementation of the proposed FY 2025 rates, the results of the cost -of -service analysis and revenue distribution as summarized in Table 9 is well within acceptable tolerances recognizing the changes in cost allocations that can occur from year to year. 3.2.2 Functionalized Costs Table 10 and Table 11 summarize the allocation of system costs to each respective function for the water and sewer systems, respectively. Detailed allocations are shown in Schedule 4 and 5 of Appendix B. 19 The 24% proposed sewer rate adjustment identified herein for FY 2025 provides approximately $4.5M in additional rate revenues compared to approximately $2.7M from the proposed 12% rate adjustment for the water system and is incorporated in these results. • M 21