E-1.4. UFS Study Azusa WCOS Report (Final) — Azusa City Council, July 27, 2026

Azusa Light & Water
Water Cost of Service Study Report
May 2026
Corporate location:

Utility Financial Solutions, LLC
185 Sun Meadow Court
Holland, MI USA 49424
(616) 393-9722
Fax (888) 566-4430
Submitted Respectfully by:

Mark Beauchamp, CPA, CMA, MBA
President, Utility Financial Solutions, LLC
[email protected]
(616) 393-9722
May 2026
Tikan Singh
General Manager
Azusa Light & Water
729 N. Azusa Avenue
Azusa, CA 91702
Dear Mr. Singh:

We are pleased to present the Report for the water cost of service study for Azusa Light & Water (ALW).

This report was prepared to provide ALW with a comprehensive examination of its existing rate structure by an outside party.

The specific purposes of this rate study are:
 Determine water utility’s revenue requirements for fiscal year 2027  Determine rate adjustments needed to meet targeted revenue requirements  Identify the monthly customer charge for each customer class This report includes results of the water cost of service study and considerations on future rate designs.

This report is intended for information and use by the utility and management for the purposes stated above and is not intended to be used by anyone except the specified parties.

Sincerely,
Utility Financial Solutions, LLC
Mark Beauchamp, CPA, MBA, CMA
185 Sun Meadow Ct
Holland, MI 49424
Contents
City of Azusa
Water Cost of Service Study

TABLE OF CONTENTS

1. Introduction ............................................................................................................................................1

2. Revenue Requirements Summary ..........................................................................................................3 Utility Rate Process .....................................................................................................................................3 Utility Revenue Requirements ...................................................................................................................4 Operating Expense Breakdown ..................................................................................................................5 Increase in Purchased Water......................................................................................................................6 Projected Debt Service and Capital Improvements ...................................................................................7 Billing Statistics ...........................................................................................................................................8 Projected Revenues ..................................................................................................................................11 Projected Cash Flow .................................................................................................................................12 Proposed Minimum Cash Reserve ...........................................................................................................13 Debt Coverage Ratio .................................................................................................................................14 Projected Rate Track ................................................................................................................................15

3. Cost of Service Summary ......................................................................................................................16 Cost of Service Components ....................................................................................................................18 Allocation Development ...........................................................................................................................19 Allocation of Commodity Costs ................................................................................................................21 Observations and Interpretation of Usage Patterns ................................................................................21 Summary Classification of Costs ...............................................................................................................25 Fire Protection Cost Breakdown ..............................................................................................................26 Relationship to Rate Design .....................................................................................................................27 Analysis of Tier Breakpoints and Cost of Service by Tier .........................................................................30 Monthly Meter Service Charges ...............................................................................................................33 Combined Cost Summary Results ............................................................................................................36

4. Significant Assumptions ........................................................................................................................37

5. Considerations and Additional Information .........................................................................................39 Financial Considerations ...........................................................................................................................39

6. Proposed Rate Design ...........................................................................................................................40 Drought Rate Schedule .............................................................................................................................44 Contents
City of Azusa
Water Cost of Service Study
Appendix A ...................................................................................................................................................45

LIST OF FIGURES
Figure 1 – Monthly Percentage of Use (Retail by Tier Level) .......................................................................21 Figure 2 – Breakdown of Fire Protection Costs............................................................................................26

LIST OF TABLES
Table 1 – Summary of Proposed Rate Adjustments ......................................................................................2 Table 2 – Projected Revenue Requirements ..................................................................................................4 Table 3 – Projected Operating Expense Summary .........................................................................................5 Table 4 – Projected Debt Summary ...............................................................................................................7 Table 5 – Projected Capital Program .............................................................................................................7 Table 6 – Projected Capital Program Funding Sources ..................................................................................7 Table 7 – Customer Class Counts (Historic & Projected) ...............................................................................8 Table 8 – Annual Usage Volumes ...................................................................................................................9 Table 9 – Projected Operating Revenue ......................................................................................................11 Table 10 – Projected Cash Flows ..................................................................................................................12 Table 11 – Proposed Minimum Cash Reserve .............................................................................................13 Table 12 – Projected Debt Coverage Ratios .................................................................................................14 Table 13 – Summary of Financials without Rate Adjustments ....................................................................15 Table 14 – Summary of Financials with Projected Rate Adjustments .........................................................15 Table 15 – Estimated Sales by Month ..........................................................................................................20 Table 16 – Classification of Costs .................................................................................................................23 Table 17 – Classification Summary...............................................................................................................25 Table 18 – Diversity Ratios ...........................................................................................................................28 Table 19 – Commodity Allocation % By Customer Class ..............................................................................28 Table 20 – Commodity Allocation by Recovery Mechanism and Factor .....................................................29 Table 21 – Cost Based Usage Rates Compared to Current Rate by Tier ......................................................29 Table 22 – Tier Breakpoints by Meter Size ..................................................................................................30 Table 23 – Tier One Block Usage Test ..........................................................................................................31 Table 24 – Tier Two Block Usage Test ..........................................................................................................32 Table 25 – Meter Service Charge Cost Allocation by Component ...............................................................33 Contents
City of Azusa
Water Cost of Service Study
Table 26 – Meter Capacity Factors ..............................................................................................................34 Table 27 – Fire Protection Demand Factors .................................................................................................34 Table 28 – Cost Based Monthly Charges by Meter Size ...............................................................................35 Table 29 – Total Costs by Customer Class ....................................................................................................36 Table 30 – Forecast Assumptions ................................................................................................................37 Table 31 – Projected Revenue Requirements ..............................................................................................37 Table 32 – Projected Revenue Requirements ..............................................................................................40 Table 33 – Average Annual Daily Usage .......................................................................................................45 Table 34 – Maximum Month Usage .............................................................................................................46 Table 35 – Maximum Day Usage ..................................................................................................................46 Table 36 – Maximum Hour Usage ................................................................................................................47 Report
Azusa Light & Water
Water Cost of Service Study Page 1

1. Introduction
The City of Azusa, through Azusa Light & Water ("ALW"), engaged Utility Financial Solutions (UFS) to perform a comprehensive water cost of service study and rate analysis. The study was undertaken to address several key objectives, including establishing appropriate revenue requirements, ensuring longterm financial stability, supporting planned capital investments, and satisfying applicable legal requirements, including California Constitution Article XIII D, Section 6, commonly known as Proposition 218 [Prop 218].

The recommended adjustments to the rate structure attempts to ensure that rate revenue does not exceed the ALW’s cost of providing water service and that rates are calculated to recover the proportionate cost of service provided to each customer class. Since the water rates evaluated in this study are within the definition of a fee for a property related service, under the definition of Proposition 218, the recommended rate structure is designed to comply with those requirements, as set forth in California Constitution Article XIII D, Section 6.

The specific purposes of the study are identified below:

1. Determine water utility’s revenue requirements for fiscal year 2027. ALW’s revenue requirements were projected for the period from 2027 – 2031 and included adjustments for the following:
a. Projected costs
b. Projected staffing levels
c. Projected assessments and water rights
d. Capital improvement plan projected over next five years

2. Reflect current water supply costs. ALW’s anticipated water supply costs for FY2024 were used in the determination of revenue requirements and projected replacement water cost adjustment factor (RWCAF).

3. Identify Cost Based Rates for Each Class of Customers: Determine the proportionate cost of providing water service to each customer class and calculate the corresponding recommended water rates for each class, so that customers placing a greater demand on the City’s water system bear a proportionate share of the costs associated with providing service

4. Identify financial metrics required to maintain current credit rating and meet bond covenant requirements.

5. Identify rate adjustments needed to meet targeted revenue requirements. The primary purpose of this study is to identify appropriate revenue requirements and the rate adjustments needed to meet targeted revenue requirements. The report includes a long-term rate track for to help ensure the financial stability of the utility in future years. The current and proposed rates are provided in Table 1 below.

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Azusa Light & Water
Water Cost of Service Study Page 2
Table 1 – Summary of Proposed Rate Adjustments
Rates Current 8/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030 Monthly Meter Service Charge
3/4" $ 19.00 $ 22.00 $ 25.50 $ 29.50 $ 32.50 $ 36.00
1" 31.20 36.25 43.00 50.00 52.00 54.00
1 1/2" 64.50 72.00 80.00 87.00 90.00 92.00
2" 96.80 108.00 118.00 130.00 133.00 136.00
3" 188.80 211.00 229.00 250.00 255.00 261.00
4" 301.70 338.00 366.00 400.00 408.00 418.00
6" 586.60 657.00 757.00 875.00 900.00 940.00
8" 943.60 1,100.00 1,400.00 1,800.00 1,900.00 2,040.00
10" 2,473.80 2,473.80 2,473.80 2,473.80 2,473.80 2,473.80 12" 3,585.00 4,178.11 4,178.11 4,317.04 4,317.04 4,628.60 3/4" Lifeline Rate 16.80 19.80 23.30 27.30 30.30 33.80
Monthly Fire Service Charge
1" Fire Service $ 5.20 $ 6.20 $ 7.20 $ 8.20 $ 9.20 $ 10.20 2" Fire Service 13.90 15.00 17.00 18.00 19.00 20.00
3" Fire Service 29.10 32.00 36.00 40.00 42.00 43.00
4" Fire Service 57.10 62.00 70.00 79.00 82.00 85.00
6" Fire Service 129.50 140.00 170.00 205.00 215.00 225.00 8" Fire Service 231.00 260.00 331.20 413.60 437.60 462.40 10" Fire Service 367.50 415.00 556.00 719.00 766.00 815.00 12" Fire Service 523.70 575.00 636.00 822.00 876.00 932.00 Usage Charge Per CCF
Tier 1 $ 2.30 $ 2.92 $ 3.43 $ 4.01 $ 4.13 $ 4.22
Tier 2 3.42 4.24 4.97 5.82 5.99 6.12
Tier 3 3.91 4.82 5.66 6.62 6.81 6.96
12" Meter 3.14 4.07 4.07 4.21 4.21 4.51
Golf Course 3.64
RWCAF:

2. Revenue Requirements Summary
Utility Rate Process
ALW retained Utility Financial Solutions, LLC to review utility rates and cost of service. This study follows the process set forth for best practice through the American Water Works Association. This report includes results of the water cost of service and unbundling study and considerations on future rate designs.

Water consumption can vary significantly due to factors like weather (e.g., a hot, dry summer leading to more irrigation). This variability is a significant challenge for water utility planning since revenues can fluctuate with water usage while many of the utility's costs are fixed. The study assumes the customers’ use of ALW water meets water conservation objectives along with little to no growth in number of water customers.

The assumptions used to develop the expense projection are described in greater detail in the “Significant Assumptions” section of this report and were developed collaboratively with staff.

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Azusa Light & Water
Water Cost of Service Study Page 4
Utility Revenue Requirements
To determine revenue requirements, the revenues and expenses for fiscal years 2024 and 2025, and 2026 budget were analyzed, with adjustments made to reflect projected operating characteristics.

ALW’s operational accounts were reviewed by budget line item and further categorized into the functional areas listed in Table 2 for cost of service purposes. Table 3 summarizes the projected operating expenses.

Table 2 – Projected Revenue Requirements
Total Operating Costs
The sum of all projected operating costs required to run the water utility. A detailed breakout is provided in Table 3.

General Fund Transfer A payment made from the water utility to the City's General Fund for costs of services to support the utility such as the maintenance of asphalt.1 Transfer Out Transfer out from accounts 32-40-722-701-5950 and 32-40-723-750-5950 for the Water Fund’s portion of the employee benefit accounts.

Debt Service
Annual principal and interest payments due on outstanding bonds and any anticipated new borrowing over the forecast period. This is a fixed obligation that must be fully funded through rates.

Rate-Funded Capital Capital improvement expenditures funded directly through rates (rather than debt or contributed capital).

Discretionary Revenues
Non-rate revenue sources available to offset a portion of the revenue requirement, such as connection fees, miscellaneous service charges, or other utility income not collected through base commodity or fixed charges.

Interest Income
Earnings generated on the utility's reserve and fund balances invested with the City and applied as an offset against the total revenue requirement.2 1 Transfer allocation is supported by the 2/13/2023 General Fund Reimbursement Study performed by Urban Futures, Inc, titled “Reimbursement from Utility Enterprise Funds for Costs Incurred and Benefits Provided by the General Fund.” 2 If ALW generates a positive net income in a given year, interest income is then transferred to the Utility Mitigation Fund (UMF). The UMF supports ALW capital projects.

Revenue Requirements Component
FY 2025
Actual
FY 2026
Proj.

FY 2027
Test Year
FY 2028
Proj.

FY 2029
Proj.

FY 2030
Proj.

FY 2031
Proj.

Total Operating Costs $23,670,208 $25,494,581 $27,849,348 $30,530,318 $31,681,639 $33,082,696 $34,435,626 General Fund Transfer - - $1,184,340 $1,373,834 $1,593,648 $1,657,394 $1,723,690 Transfer Out $29,485 $29,485 $33,300 $34,960 $36,715 $38,545 $40,087 Debt Service $2,985,015 $3,096,813 $3,096,313 $4,621,317 $4,644,938 $4,645,838 $4,647,213 Rate-Funded Capital $1,892,316 $1,000,000 $2,100,670 $3,429,837 $8,000,000 $8,000,000 $8,000,000 Subtotal Requirements $28,577,025 $29,620,879 $34,263,971 $39,990,265 $45,956,939 $47,424,473 $48,846,615 Less: Discretionary Revenues $1,354,829 $814,878 $812,822 $810,633 $809,507 $811,960 $811,231 Less: Interest Income $673,681 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 Net Revenue Requirements $26,548,514 $28,706,001 $33,351,148 $39,079,633 $45,047,432 $46,512,513 $47,935,384 Report
Azusa Light & Water
Water Cost of Service Study Page 5
Operating Expense Breakdown
Table 3 – Projected Operating Expense Summary
Admin and General Salaries, benefits, and office related expenses functionalized as Admin and General in the income statement.

Source of Supply Salaries, benefits, bond administration, water conservation, and office related expenses functionalized as source of supply in the income statement.

Cost of Sales and Services Includes cost of outside assessments and water rights expense Additional MWD Projected purchased water and outside assessment costs for the Metropolitan Water District of Southern California. Costs above represent total dollar spent.

Transmission/Collection
Salaries, benefits, outside services, supplies, maintenance & repair, and overhead expenses functionalized as Transmission/Collection in the income statement.

Special Franchise Fees
Represents general ledger account 7010 for reimbursements to the City’s General Fund for a portion of the costs incurred by the General Fund on the water utility’s behalf.

Additional Costs for Drought Represents general ledger account 6591 for water for resale.

Cost Category
FY 2025
Actual
FY 2026
Proj.

FY 2027
Test Year
FY 2028
Proj.

FY 2029
Proj.

FY 2030
Proj.

FY 2031
Proj.

Admin & General $ 8,902,243 $ 9,692,865 $ 9,825,272 $ 10,675,086 $ 11,032,652 $ 11,558,812 $ 12,021,165 Source of Supply 3,141,803 3,044,938 4,139,871 4,388,263 4,563,793 4,746,345 4,936,199 Cost of Sales & Services 6,749,235 7,383,898 7,886,546 8,359,739 8,694,128 9,041,893 9,403,569 Additional MWD - 227,650 781,530 1,523,980 1,505,060 1,614,200 1,708,390 Transmission/Collection 4,336,058 4,594,774 4,642,809 4,921,377 5,118,233 5,322,962 5,535,880 Special Franchise Fees 540,869 550,456 573,321 661,873 767,773 798,483 830,423 Total Operating Costs $ 23,670,208 $ 25,494,581 $ 27,849,348 $ 30,530,318 $ 31,681,639 $ 33,082,696 $ 34,435,626 Cost Category
% Chg
'25→'26
% Chg
'26→'27
% Chg
'27→'28
% Chg
'28→'29
% Chg
'29→'30
% Chg
'30→'31
Admin & General 8.9% 1.4% 8.6% 3.3% 4.8% 4.0%
Source of Supply (3.1%) 36.0% 6.0% 4.0% 4.0% 4.0%
Cost of Sales & Services 9.4% 6.8% 6.0% 4.0% 4.0% 4.0%
Additional MWD - 243.3% 95.0% (1.2%) 7.3% 5.8%
Transmission/Collection 6.0% 1.0% 6.0% 4.0% 4.0% 4.0%
Special Franchise Fees 1.8% 4.2% 15.4% 16.0% 4.0% 4.0%
Total Operating Costs 7.7% 9.2% 9.6% 3.8% 4.4% 4.1%
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Azusa Light & Water
Water Cost of Service Study Page 6
Increase in Purchased Water
ALW’s projected costs of purchasing wholesale water, including costs imposed through outside assessments, are expected to increase significantly over the forecast period due to rising Metropolitan Water District of Southern California (“MWD”) rates and related regional water supply charges. MWD’s published rate schedule reflects annual increases to several key rate components, including the supply rate, system access rate, treatment surcharge, readiness-to-serve charge (“RTS”), and capacity charge.

These increases directly affect the cost of water purchased for resale and the fixed regional charges assessed to the utility.

Wholesale water purchased from MWD includes a capacity charge based on peak flow by quarter that is projected to increase 160% by 2031. In addition, projected treated water purchases and treatment related costs are expected to increase as both the cost per acre-foot and the usage of treated water purchases increase over the forecast period. The readiness-to-serve charge, representing cost recovery of fixed costs to MWD, is also projected to increase, rising approximately 63% by 2031. These charges are imposed as a cost to ALW to support regional water system reliability, supply availability, and infrastructure readiness, and the amounts of these charges are outside the control of ALW.

As a result, total projected MWD related costs increase from approximately $227,838 in 2026 to approximately $1.7 million by 2030. These costs are not recovered through the Replacement Water Cost Adjustment Factor (“RWCAF”) and therefore are considered as part of the base rate adjustment.

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Azusa Light & Water
Water Cost of Service Study Page 7
Projected Debt Service and Capital Improvements
Table 4 summarizes ALW’s existing and projected debt obligations over the forecast period. Debt service requirements including principal and interest payments on outstanding bonds and anticipated new borrowing represent a fixed component of the utility’s revenue requirement and must be fully funded through rates.

Table 4 – Projected Debt Summary
Table 5 presents ALW’s projected capital improvement program (CIP) over the five-year forecast period.

The capital program reflects planned investments in infrastructure replacement, system reliability, and regulatory compliance.

Table 5 – Projected Capital Program
The capital program reflects planned investments across several key areas, including well rehabilitation, emergency system interconnections, pipeline replacement, pump station upgrades, SCADA improvements, and fleet replacement. The largest near-term expenditures are concentrated in 2027 and 2028, driven primarily by the Well Rehabilitation Program - Aspan and the Golden Mussel Mitigation, which together account for the majority of the $18.0 million in planned spending and requiring debt financing as proposed in Table 5. Water Pipeline Replacement represents the most significant multi-year commitment, funding the systematic renewal of aging distribution infrastructure over a three-year period to reduce water loss and improve system reliability. These projects represent significant expenditures that must be funded through a combination of rates and debt financing.

Table 6 identifies the projected funding sources for the capital program, including debt funded proceeds and rate-funded capital. Understanding how capital projects are financed is important because it affects both the timing of rate adjustments and the utility’s long-term debt position.

Table 6 – Projected Capital Program Funding Sources
Table 2: Debt Service ($)
Debt Category FY 2025
Actual
FY 2026
Proj.

FY 2027
Proj.

FY 2028 FY 2029 FY 2030 FY 2031
Existing Debt $ 3,097,938 $ 3,096,813 $ 3,096,313 $ 3,095,988 $ 3,097,188 $ 3,096,588 $ 3,097,463 New Debt $ - $ - $ - $ 1,525,329 $ 1,547,750 $ 1,549,250 $ 1,549,750 Total $ 3,097,938 $ 3,096,813 $ 3,096,313 $ 4,621,317 $ 4,644,938 $ 4,645,838 $ 4,647,213 FY 2027
Proj.

FY 2028
Proj.

FY 2029
Proj.

FY 2030
Proj.

FY 2031
Proj.

Total
Total Capital Program $ 18,000,000 $ 8,000,000 $ 8,000,000 $ 8,000,000 $ 8,000,000 $ 50,000,000 Funding Sources
Debt Funded $ 17,378,878 $ 6,526,122 $ - $ - $ - $ 23,905,000 Rate-Funded Capital $ 621,122 $ 1,473,878 $ 8,000,000 $ 8,000,000 $ 8,000,000 $ 26,095,000 Total Funding $ 18,000,000 $ 8,000,000 $ 8,000,000 $ 8,000,000 $ 8,000,000 $ 50,000,000 Table 3: Capital Program Funding Sources ($)
Category Total ($)
Total Capital Program $ 50,000,000
Funding Sources
Debt Funded $ 23,905,000
Rate-Funded Capital $ 26,095,000
Total Funding Sources $ 50,000,000
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Azusa Light & Water
Water Cost of Service Study Page 8
Billing Statistics
Customer Class Counts
Table 7 presents historic and projected customer class counts and usage volumes by customer class.

Customer class counts are assumed to remain relatively flat over the forecast period, consistent with the ALW’s service area build-out and the study’s assumption of little to no growth in the number of water customers.

Table 7 – Customer Class Counts (Historic & Projected)
Customer Class FY2025
Actual
FY2027
Test Year
FY2028
Proj.

FY2029
Proj.

FY2030
Proj.

FY2031
Proj.

In-City Meters
3/4" Meter 5,895 5,895 5,895 5,895 5,895 5,895
1" Meter 2,809 2,809 2,809 2,809 2,809 2,809

1.5" Meter 153 153 153 153 153 153
2" Meter 517 517 517 517 517 517
3" Meter 65 65 65 65 65 65
4" Meter 42 42 42 42 42 42
6" Meter 7 7 7 7 7 7
8" Meter 10 10 10 10 10 10
10" Meter 2 2 2 2 2 2
Lifeline (3/4") 543 543 543 543 543 543
Outside City Meters
3/4" Meter 12,118 12,118 12,118 12,118 12,118 12,118
1" Meter 301 301 301 301 301 301

1.5" Meter 108 108 108 108 108 108
2" Meter 281 281 281 281 281 281
3" Meter 31 31 31 31 31 31
4" Meter 42 42 42 42 42 42
6" Meter 15 15 15 15 15 15
8" Meter 10 10 10 10 10 10
Fire Service
2" Fire Service 146 146 146 146 146 146
3" Fire Service 2 2 2 2 2 2
4" Fire Service 68 68 68 68 68 68
6" Fire Service 150 150 150 150 150 150
8" Fire Service 102 102 102 102 102 102
10" Fire Service 36 36 36 36 36 36
Special Classes
12" Special Zone 1 1 1 1 1 1
Golf Course 1 1 1 1 1 1
Total Customers 23,455 23,454 23,454 23,454 23,454 23,454 Customer Class Counts
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Azusa Light & Water
Water Cost of Service Study Page 9
Usage Volumes
The usage volumes in Table 8 reflect total billed consumption across all customer classes: retail customers (Tier 1, Tier 2, and Tier 3), the 12-Inch Meter, Golf Course, and fire protection customers. Retail customers, or customers served under standard metered service, represent the largest share of ALW's customer base and account for the majority of total system usage. For purposes of this study, the term “fire protection” is synonymous with “fire service”.

ALW uses a tiered water rate for all retail and fire protection customers where tier breakpoints for each meter size are distinct and based on the meter’s hydraulic capacity ratio. Tier 1 represents the system cost of essential indoor water use, designed to provide base demand. Tier 2 reflects system costs associated with moderate seasonal variation in demand, affecting portions of the water system designed to serve both average and peak demand. Tier 3 usage exhibits high variability and represents costs associated with additional public facilities to provide water service for peak demand. The tiers are described in more detail later in this report. (e.g., see Figure 1 and Table 22.) Fire protection usage volumes are based on metered flows through bypass (detector check) assemblies and are comparatively small, as they reflect only incidental testing and flushing flows rather than actual fire event demand.

Table 8 – Annual Usage Volumes
State Conservation
Usage projections reflect ALW’s obligations under the State’s Urban Water Use Efficiency framework established by Senate Bill 606 and Assembly Bill 1668. These laws require urban retail water suppliers to calculate and comply with a State-mandated Urban Water Use Objective (UWUO), which sets an overall water use budget based on indoor residential standards (gallons per capita per day, or GPCD), outdoor irrigation efficiency standards, and system water loss.

In FY2025, ALW met the 55 GPCD residential allowance. The State subsequently reduced the allowance to 47 GPCD for FY2024/25, with a further reduction to 42 GPCD effective in 2030. Based on the State’s residential projection framework, the 2025 GPCD allowance equates to approximately 9,394 acre-feet Usage Tier
FY2025
Actual (CCF)
FY2027
Test Year (CCF)
FY2028
Proj. (CCF)
FY2029
Proj. (CCF)
FY2030
Proj. (CCF)
FY2031
Proj. (CCF)
Ti er 1 1,467,423 1,313,404 1,313,404 1,313,404 1,313,404 1,313,404 Ti er 2 2,146,271 1,924,825 1,924,825 1,924,825 1,924,825 1,924,825 Ti er 3 2,045,638 1,855,116 1,855,116 1,855,116 1,855,116 1,855,116 12" Meter 409,547 409,547 409,547 409,547 409,547 409,547 Golf Course 51,578 51,578 51,578 51,578 51,578 51,578
Fi re Protection 31,728 31,673 31,673 31,673 31,673 31,673 Total Volume (CCF) 6,152,185 5,586,143 5,586,143 5,586,143 5,586,143 5,586,143 Annual Usage Volumes (CCF)
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Azusa Light & Water
Water Cost of Service Study Page 10
(AF), and the 2030 allowance equates to approximately 8,280 AF. ALW’s actual FY2025 consumption of 8,416 AF is below the current 9,394 AF allowance, demonstrating current compliance with State mandates.

However, the 2030 State requirement of 8,280 AF is below ALW’s current actual consumption of 8,416 AF, requiring a reduction from current levels to achieve and maintain compliance. To meet this obligation while maintaining financial stability, annual usage volumes are held at approximately 5,586,143 CCF through the end of the forecast period. This level of projected consumption reflects both ALW’s conservation commitments and the State’s progressively stricter efficiency standards. Holding volumes stable through 2031 also provides a consistent and conservative basis for projecting revenues and rate requirements, ensuring the utility does not assume volume growth that may not materialize given increasing conservation mandates.

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Azusa Light & Water
Water Cost of Service Study Page 11
Projected Revenues
The projected operating revenues shown in Table 9 reflect the impact of the previously adopted rate adjustments and anticipated changes in sales volumes over the forecast period. A 4.0% rate adjustment was previously approved for July 1, 2026; however, even if this increase was implemented, overall revenue declines compared to the prior year. The declines are primarily attributable to a 3.69% reduction in water sales volumes driven by customer conservation.

FY2028, reflects a second 4.0% rate adjustment previously approved for July 1, 2027. Sales volumes are projected to stabilize with no change from FY2027 levels, allowing the full benefit of the rate increase to flow through to revenue.

Table 9 – Projected Operating Revenue
Replacement Water Cost Adjustment Factor
ALW uses a water cost adjustment factor to recover certain variable water supply costs from customers.

The RWCAF is designed to capture costs imposed on ALW through Resource Development Assessments (RDA) for the Upper San Gabriel Valley Municipal Water District (USGVMWD) and San Gabriel Valley Water Company (SGV), supplemental water purchases, and replacement water obligations. When ALW extracts more water from the basin than its adjudicated share, ALW is obligated to replace that water, either by importing water or some other means, and spreading it into recharge basins to replenish the aquifer. A base amount of water supply costs are built into the commodity charge. To the extent actual costs in these categories exceed the base amount included in rates, the under-recovery is charged to customers through the RWCAF on a per CCF basis. ALW imposes RWCAF charges outside of the rates calculated in this Report, and the RWCAF charges are passthrough charges authorized by Government Code Section 53756. This mechanism provides a transparent and automatic true-up that protects the utility from unanticipated fluctuations in regional water supply costs.

Description
Historical
2025
Interim
2026
Test Year
2027
Projected
2028
Projected
2029
Projected
2030
Projected
2031
Operating Revenues:

Water Sales
Sales and Service Charges $ 29,418,453 $ 29,916,091 $ 27,801,878 $ 28,913,954 $ 28,913,954 $ 28,913,954 $ 28,913,954 Miscellaneous - 10,276 8,221 6,031 4,906 7,359 6,629
Lease Revenue 1,354,829 804,601 804,601 804,601 804,601 804,601 804,601 Increase in RWCAF Revenue - - 509,874 1,252,646 1,630,322 1,866,329 2,112,760 Operating Revenue $ 30,773,282 $ 30,730,969 $ 29,124,575 $ 30,977,233 $ 31,353,783 $ 31,592,243 $ 31,837,945 Report
Azusa Light & Water
Water Cost of Service Study Page 12
Projected Cash Flow
The utility’s basic financial statements are kept on an accrual accounting basis. This means they recognize expenses when they are incurred and revenues when they are earned, rather than when cash changes hands. In the accrual basis of accounting, depreciation is recognized as an expense, even though it doesn't involve an actual cash outflow.

Table 10 shows the projected cash flow between 2027 and 2031. To project actual cash flow, several adjustments are made to the accrual basis financial statements:
 Depreciation Expense (a non-cash item) is added back, since it reduces net income on the income statement but doesn’t involve an actual cash outflow.
 Principal Repayments on Debt are subtracted. These are actual cash outflows, but they are not treated as expenses on the income statement under accrual accounting.  Capital Expenditures are subtracted. Like principal repayments, these are actual cash outflows that are not treated as expenses on the income statement.

The projection starts with the actual cash balances from FY2025, which are adjusted for the anticipated cash expenditures in FY2026. It’s important to note that changes in the capital improvement plan can have a significant impact on projected cash balances, as they involve large expenditures.  If new projects are added, or if existing projects become more expensive than anticipated, this can significantly reduce projected future cash balances.
 Conversely, delaying or scaling back capital projects can help preserve cash.

Based on these assumptions and projections, the utility expects to have a cash balance of $27.1M in 2027 (including bond issuances in that year) and falling to a $-31.2M deficit in 2031 without revenue changes.

Table 10 – Projected Cash Flows
Description
FY 2027
Test Year
FY 2028
Proj.

FY 2029
Proj.

FY 2030
Proj.

FY 2031
Proj.

Projected Cash Flows
Net Income ($5,530,542) ($7,703,035) ($8,517,282) ($9,771,899) ($10,945,104) Depreciation Expense/Amortization $4,446,816 $4,771,816 $4,971,816 $5,171,816 $5,371,816 Subtract Debt Principal ($1,855,000) ($2,280,000) ($2,360,000) ($2,440,000) ($2,545,000) Add Bond Sale Proceeds $25,000,000 - - - -
Cash Available from Operations $22,061,274 ($5,211,219) ($5,905,466) ($7,040,083) ($8,118,288) Estimated Annual Capital Additions $18,000,000 $8,000,000 $8,000,000 $8,000,000 $8,000,000 Debt Service Reserve Funding $1,095,000 - - - -
Net Cash From Operations $2,966,274 ($13,211,219) ($13,905,466) ($15,040,083) ($16,118,288) Beginning Cash Balance $24,107,500 $27,073,774 $13,862,555 ($42,911) ($15,082,994) Ending Cash Balance $27,073,774 $13,862,555 ($42,911) ($15,082,994) ($31,201,283) Proposed Minimum $15,297,191 $17,017,610 $17,404,556 $17,814,191 $18,218,104 Report
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Proposed Minimum Cash Reserve
Table 11 details the minimum level of cash reserves required to help ensure timely replacement of assets and to provide financial stability of the utility. The methodology used to establish this target is based on an assessment of working capital needs to fund operating expenses, capital improvements, annual debt service payments, and utility’s exposure to risks related to catastrophic events, exposure to market risks, changes in fuel costs, loss of major customers, and utility’s ability to timely recover changes in power supply expenses.

Based on these assumptions, ALW should maintain a minimum of $15.3M in cash reserves for 2027 and $18.2M in 2031.

Table 11 – Proposed Minimum Cash Reserve
Risk Area Risk Factor Description
Operation & Maintenance
Less Depreciation Expense 12.3%
Equivalent to approximately 45 days of working capital, ensuring the utility can meet near-term operating obligations during periods of revenue shortfall or unexpected expense.

Historical Rate Base 3.0%
ALW’s system is currently almost 60% depreciated. ALW is considered at higher risk for unplanned events requiring cash outlay outside of planned capital.

Current Portion of
Debt Service Payment 76.5% Represents the highest debt payment (principal and interest) as a function of the annual total.

Five-Year Capital Improvements
– Net of Bond Proceeds 20.0% 1/5 of the five-year capital plan, net of bond proceeds to ensure timely funding of planned capital.

Description Risk Factor
FY 2027
Test Year
FY 2028
Proj.

FY 2029
Proj.

FY 2030
Proj.

FY 2031
Proj.

Minimum Cash Reserve Levels Determinants
% Plant Depreciated 58.9% 59.0% 59.1% 59.4% 59.7%
Operation & Maintenance Less Depreciation Expense 12.3% $3,433,481 $3,748,002 $3,876,890 $4,045,837 $4,208,698 Historical Rate Base 3.0% $4,496,512 $4,736,512 $4,976,512 $5,216,512 $5,456,512 Current Portion of Debt Service Payment 76.5% $2,367,197 $3,533,096 $3,551,154 $3,551,842 $3,552,894 Five Year Capital Improvements - Net of Bond Proceeds 20.0% $5,000,000 $5,000,000 $5,000,000 $5,000,000 $5,000,000 Minimum Cash Reserve Levels $15,297,191 $17,017,610 $17,404,556 $17,814,191 $18,218,104 Projected Cash Reserves $27,073,774 $13,862,555 ($42,911) ($15,082,994) ($31,201,283) Report
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Debt Coverage Ratio
Table 12 is the projected debt coverage ratios with capital additions as provided by ALW staff. Debt coverage ratio is a measurement of debt affordability and measures the cash flow from operations in that fiscal year. A ratio of 1 indicates there was enough cash flow from operations to pay the debt payment one time. The minimum debt coverage ratio for prudent financial planning purposes is 1.40.

The “Net Income” shown in Table 12 is based on revenues from previously approved rates, not the proposed updated rates reflected in Table 1.

Maintaining a 1.40 debt coverage ratio is good business practice and helps to achieve the following:
 Helps to ensure debt coverage ratios are met in years when sales are low due to cold or wet summers or loss of a major customer(s).
 When debt coverage ratios are consistently met, it may help obtain a higher bond rating if revenue bonds are sold in the future, to lower interest cost.

Table 12 – Projected Debt Coverage Ratios
Debt coverage falls below the ALW minimum during the projection period without changes in rates. ALW has a minimum ratio requirement of 1.25.

Description
FY 2027
Test Year
FY 2028
Proj.

FY 2029
Proj.

FY 2030
Proj.

FY 2031
Proj.

Debt Coverage Ratio
Net Income ($3,772,881) ($5,939,305) ($6,753,552) ($8,008,168) ($9,181,374) Add Depreciation/Amortization Expense $4,446,816 $4,771,816 $4,971,816 $5,171,816 $5,371,816 Add Interest Expense $1,241,313 $2,341,317 $2,284,938 $2,205,838 $2,102,213 Cash Generated from Operations $1,915,247 $1,173,828 $503,202 ($630,515) ($1,707,345) Debt Principal and Interest $3,096,313 $4,621,317 $4,644,938 $4,645,838 $4,647,213 Projected Debt Coverage Ratio (Covenants) 0.62x 0.25x 0.11x -0.14x -0.37x Minimum Debt Coverage Ratio 1.40x 1.40x 1.40x 1.40x 1.40x Report
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Projected Rate Track
The previously approved rate adjustments of 4.0% (effective July 1, 2026, and July 1, 2027) are insufficient to meet ALW’s projected revenue requirements over the forecast period. As illustrated in Table 13, without additional rate adjustments, the utility faces a growing operating deficit that erodes financial reserves and threatens long-term fiscal stability.

Table 13 – Summary of Financials without Rate Adjustments The subsequent rate adjustments presented in Table 14 are necessary to close the revenue gap, fund ongoing operations, service debt obligations, and support planned capital investment through 2031.

Table 14 – Summary of Financials with Projected Rate Adjustments Fiscal
Year
Previously
Approved
Rate
Additional
Rate
Adjustments
Projected Cash
Balances
Proposed
Minimum Cash
Reserve
Debt
Coverage
Ratio
Bond Issues
Including Fees
2027 4.0% 0.0% $ 27,073,774 $ 15,297,191 0.62 $ 25,000,000 2028 4.0% 0.0% $ 13,862,555 $ 17,017,610 0.25
2029 0.0% $ (42,911) $ 17,404,556 0.11
2030 0.0% $ (15,082,994) $ 17,814,191 (0.14)
2031 0.0% $ (31,201,283) $ 18,218,104 (0.37)
Fiscal
Year
Previously
Approved
Rate
Additional
Rate
Adjustments
Projected Cash
Balances
Proposed
Minimum Cash
Reserve
Debt
Coverage
Ratio
Bond Issues
Including Fees
2027 4.0% 12.0% $ 30,281,683 $ 15,297,191 1.65 $ 25,000,000 2028 4.0% 12.0% $ 23,855,887 $ 17,033,619 1.78
2029 16.0% $ 22,165,547 $ 17,433,622 2.87
2030 4.0% $ 20,915,204 $ 17,847,043 2.98
2031 4.0% $ 20,224,255 $ 18,254,894 3.12
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3. Cost of Service Summary
A cost of service study was completed for FY2027 to determine the cost of providing service to each customer class of the published rate tariff and to assist in design of water rates for customers. A cost of service study consists of the following general steps:

1. Determine utility revenue requirement for test year 2027.

2. Classify utility expenses into common cost pools.

Cost Pool Description
Source of Supply Costs to obtain raw water (e.g., wells, intakes, purchased water) Treatment Expenses to treat and make water potable
Transmission Costs to move water from treatment facilities to distribution systems Distribution Costs to deliver water through mains to customers Reservoirs Costs for storage facilities that balance supply and demand Customer Costs directly related to serving customers (e.g., billing, metering, service) Admin and General Overall administrative overhead and support functions (e.g., management, finance, HR)
Fire Protection Expenses associated with maintaining system capacity for fire service Hydrants Costs for installation, maintenance, and operation of fire hydrants Ratebase Allocation of the administrative costs based on the proportion of plant in service by function

3. Functionalize within cost pools.

Variable Fixed
Base Commodity Distribution Facilities
Max Day Commodity Customer
Max Hour Commodity Fire Protection

4. Allocate costs from each cost pool class to customer class based on the component’s contribution to utility expenses.

Customer Class Cost Pool Description
Tier 1 Variable Represent ALW’s proportionate cost of providing service to each tier through allocating the variable
components of the costs (Base, Max Day, Max Hour).

Tier 2 Variable
Tier 3 Variable
Monthly Meter Service Fixed
Fixed monthly charge developed by allocating the
fixed cost components through number of meters,
meter costs, meter size, and meter equivalent ratios.

This charge varies by meter size.

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12” Meter Variable/Fixed Contracted rate with a variable per unit charge and a fixed monthly meter service charge
Golf Course Variable
Special rate with a single variable per unit charge;
Fixed monthly meter charge is consistent with the
published monthly meter service charge schedule.

Fire Protection Fixed
Fixed monthly charge for private fire protection.

Usage for fire meters is billed under the tier rate
schedule.

5. Compare revenues received from each class to the cost of service. The cost of service provides guidance for the direction of the rate design.

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Cost of Service Components
Summary of Rate Components
The cost of service study is a critical tool in utility finance and management. It ensures that rates are set based on actual costs, and it helps to distribute those costs fairly among customers, based on how they use the service. It provides a roadmap for rate adjustments that are needed to ensure the utility's financial health and its ability to provide reliable service over the long term. The cost of service study typically breaks the cost down between two components:

The purpose of a cost of service study is to allocate costs between flow (Commodity Costs) and customer service costs (Customer Costs). The cost of service study was based on recognized procedures from the American Water Works Association.

Customer Costs (Fixed) - These are fixed costs, associated with serving customers regardless of how much water they use. They include the costs of operation and maintenance related to meters and services, meter reading, billing, and collection. Because these costs are largely fixed, they are typically recovered through a fixed ‘customer charge’ that customers pay regardless of their water use. This portion of the rate ensures that the utility can cover its basic operating costs, even if water use fluctuates significantly. Allocating these costs based on the relative cost of meters and services and the number of customers ensures that each customer is paying their fair share of these basic operating costs.

Commodity Costs (Variable) - These are the variable costs associated with the actual production and delivery of water. They can include costs related to water rights, water treatment, pumping (energy costs), and distribution infrastructure. Because these costs tend to vary with the amount of water used, they are typically recovered through a variable ‘commodity charge’ that is based on the volume of water consumed. As water use increases, these costs increase, so it is important that customers who use more water pay more to cover these additional costs.

For water utilities, the cost of service study is based on Long Term Marginal Costs (LTMC) and is considered a best practice as it sends accurate price signals to consumers based on the full cost of providing additional units of service, including the cost of infrastructure investments that will be needed in the future. This promotes efficient use of water and ensures that the utility collects sufficient revenue to sustain its operations over the long term. This differs from short-Term Marginal Cost (STMC) which refers to the cost associated with producing one additional unit of output (e.g., one more cubic meter of water treated and delivered) in the short term.

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Allocation Development
The ALW’s water rate structure consists of five usage-based customer classes (three tiers of Retail Customers, the Golf Course, and a Special Contract) and two fixed-based customer classes (monthly meter service charge and private fire protection), each of which varies based on meter size.

Retail Customers are billed for water usage under a three-tier inclining block rate structure, described in the following section. The usage rates are uniform for each tier, for example, the tier 1 usage rate for 8/1/2026 of $2.92 per CCF is the same for all tier 1 retail usage, and the tier 3 usage rate for 8/1/2026 of $4.82 per CCF is the same for all tier 3 retail usage. However, the usage thresholds for each tier vary by meter size, reflecting differences in expected usage patterns for each meter size within each retail class. (See Table 22.) This structure is intended to differentiate, for each customer class, between levels of water consumption and the corresponding demands placed on the system. The tier rates, and the usage levels they intend to represent, are described in greater detail later in this report.

The development of the cost of service analysis and resulting rate design is guided by three fundamental principles:

Nexus Test – There must be a direct connection between the rates charged and the cost of providing water service to the customer.

Proportionality Test – The amount charged to each customer must be proportional to the cost of service attributable to that customer, based on the demands they place on the system.

Reasonable Cost Recovery - The total rate revenue must not exceed the estimated reasonable cost of providing the water service to all customers.

Together, these principles require that water rates be based on the cost of providing service and that customers pay their fair share of those costs, consistent with the requirements of Proposition 218.

Table 15 below presents the estimated monthly water usage (CCF) by rate class (excluding fire protection usage).

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Table 15 – Estimated Sales by Month
Month 12" Meter
Golf Course
Rate Tier 1 Usage Tier 2 Usage Tier 3 Usage
Jan 33,715 2,180 110,909 162,238 140,915
Feb 36,990 1,501 109,917 136,438 112,412
Mar 26,427 2,651 108,862 114,595 90,129
Apr 35,554 1,333 109,238 134,795 110,266
May 38,845 6,129 110,205 155,137 144,502
Jun 35,607 5,958 108,782 167,165 142,623
Jul 36,424 6,330 107,556 185,678 197,354
Aug 44,253 9,259 108,375 192,064 233,243
Sep 29,361 5,426 109,681 192,016 239,012
Oct 29,898 5,092 109,406 170,981 172,781
Nov 35,608 3,965 110,138 167,373 155,571
Dec 26,865 1,754 110,335 146,346 116,309
Total 409,547 51,578 1,313,404 1,924,825 1,855,116
Retail Customers
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Allocation of Commodity Costs
The allocation of commodity related costs (which comprise the “Usage Charge per CCF” portion of water rates) is informed by the observed usage patterns of each customer class. The following graphs compare total system usage to the monthly usage patterns of each tier within the Retail class.

Figure 1 – Monthly Percentage of Use (Retail by Tier Level) Observations and Interpretation of Usage Patterns
The analysis of usage patterns for each monthly billing cycle reveals clear distinctions between the impacts of water usage by each tier on the portions of the water system designed to provide base demand and seasonal demand:

Tier 1 Usage
 Usage remains relatively constant each month throughout the year, averaging approximately 8%–

8.5% of annual use each month
 Reflects indoor and essential water use
 Represents continuous demand on the portion of the water system designed to provide base demand  Does not materially impact the portion of the water system designed to meet peak system capacity requirements
Tier 2 Usage
 Exhibits moderate seasonal variation in demand for each month throughout the year  Generally tracks overall system demand patterns
0%
2%
4%
6%
8%
10%
12%
14%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Monthly Percentage of Use
Retail Customers by Tier Level
System Tier 1 Usage Tier 2 Usage Tier 3 Usage
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 Contributes to impacts on both the portions of the water system designed to serve average demand each month as well as the portion designed to serve peak demand conditions Tier 3 Usage
 Exhibits significant seasonal variability
 Usage increases substantially during peak summer months (July–September)  Reflects outdoor irrigation and discretionary water use  Represents the portion of demand that requires additional public facilities (and costs to ALW) to provide water service for peak demand conditions
System Demand Relationship
 Overall system demand closely follows the combined patterns of Tier 2 and Tier 3 usage  Peak system demand occurs during the same period as the highest Tier 3 usage; therefore, the majority of the costs of providing services during peak demand are allocated to the Tier 3 Retail Customer Class
 Tier 1 usage remains stable and does not require many portions of the water system that are only needed to serve peak demand
Cost of Service Implications
These usage patterns demonstrate that there is a different cost of providing water service to Retail customers at each of the three tiers of water usage since each tier imposes different types of demands (and corresponding costs) on the system:
 Tier 1 usage reflects base demand which creates less of an impact on ALW’s water system, resulting in a lower cost to provide water service to Tier 1 customers and supports the recovery of costs associated with maintaining continuous service
 Tier 2 usage reflects a need to use portions of the water system designed to serve a combination of base and variable demand, so the corresponding costs of using that portion of the water system are allocated to Tier 2 customers
 Tier 3 usage is highly seasonal and substantially relies on portions of the water system designed to serve peak demand conditions (e.g., the sizing of treatment, pumping, storage, and transmission infrastructure) for which those costs are allocated to Tier 3 customers As a result, higher-tier usage is associated with greater capacity related costs, as ALW must incur costs for the portion of the system that is designed to meet peak demand conditions driven primarily by seasonal consumption.

Accordingly, the tiered rate structure aligns with cost of service principles and supports compliance with Proposition 218.

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Classification of Costs
The purpose of cost classification is to identify the underlying drivers of utility costs and to ensure those costs are allocated to customers in a manner consistent with cost of service principles. Proper classification aligns cost recovery with cost causation, promoting fairness and transparency in rate design.

Customer Class Classification
Commodity:

Tier 1, Tier 2, Tier 3, Golf Course, 12” Meter
Source of Supply, Treatment, Transmission,
Reservoirs, Distribution, Distribution Base, Admin
and General, Ratebase
Fixed:

Monthly Meter Service Charges, Fire Protection
Customer, Distribution, Admin and General,
Ratebase
For this analysis, system cost categories are classified into the following primary classifications in Table

16. Base commodity, max day commodity, and max hour commodity classifications were developed using the system’s plant data. Distribution facilities, customer, and fire protection classifications were developed AWL system. Customer and hydrant classifications were developed using direct costs.

Table 16 – Classification of Costs
Cost Categories Classification Base
Commodity
Max Day
Commodity
Max Hour
Commodity
Distribution
Facilities Customer Fire Protection Hydrants Total Revenue Requirement Water Rights Source of Supply $ 5,981,316 $ 2,349,112 $ - $ - $ - $ - $ 8,330,428 Outside Assessments Source of Supply $ 242,604 $ 95,281 $ - $ - $ - $ - $ 337,885 Salaries, Wages, and Benefits - Treatment Treatment $ 1,587,333 $ 623,412 $ - $ - $ - $ - $ 2,210,745 Repairs and Maintenance Treatment Treatment $ 283,126 $ 111,195 $ - $ - $ - $ - $ 394,321 Utilities - Treatment Treatment $ 1,556,866 $ - $ - $ - $ - $ - $ 1,556,866 Training - Treatment Treatment $ 24,937 $ 9,794 $ - $ - $ - $ - $ 34,731 Supplies - Treatment Treatment $ 563,613 $ - $ - $ - $ - $ - $ 563,613 Repairs and Maintenance T&D Transmission $ 115,582 $ 45,394 $ 94,179 $ - $ - $ - $ 255,156 System Pumping Transmission $ 16,137 $ 6,338 $ 13,149 $ - $ - $ - $ 35,624 Storage Reservoirs $ 109 $ - $ 131 $ - $ - $ - $ 240
Services Customer $ - $ - $ - $ - $ 205,152 $ - $ 205,152 Meters Customer $ - $ - $ - $ 159,880 $ - $ 159,880
Distribution Mains Distribution $ - $ - $ 782,368 $ 1,665,914 $ - $ 969,925 $ 3,418,207 Hydrants Fire Protection $ - $ - $ - $ - $ - $ - $ 30,025 $ 30,025 Supplies/Admin Distribution Base $ 254,433 $ - $ - $ - $ - $ - $ 254,433 Fuel and Oil Distribution Base $ 76,916 $ - $ - $ - $ - $ - $ 76,916 Meter Reading Customer $ - $ - $ - $ - $ 281,470 $ - $ 281,470 Billing Customer $ - $ - $ - $ - $ 281,470 $ - $ 281,470 Miscellaneous Customer $ - $ - $ - $ - $ 3,035 $ - $ 3,035 Customer Rec & Collection Customer $ - $ - $ - $ - $ 3,048,860 $ - $ 3,048,860 Admin and General Admin and General $ 2,280,170 $ 690,364 $ 189,570 $ 354,908 $ 847,874 $ 206,634 $ 6,397 $ 4,575,916 Salaries, Wages, and Benefits - Admin Ratebase $ 390,337 $ 153,249 $ 136,565 $ 232,939 $ 22,518 $ 135,621 $ 1,267 $ 1,072,496 Office Expense Ratebase $ 2,176 $ 854 $ 761 $ 1,299 $ 126 $ 756 $ 7 $ 5,979 Insurance, Audit, Professional Services Ratebase $ (11,700) $ (4,594) $ (4,093) $ (6,982) $ (675) $ (4,065) $ (38) $ (32,147) Training Expense Ratebase $ 16,578 $ 6,509 $ 5,800 $ 9,893 $ 956 $ 5,760 $ 54 $ 45,549 Bond Administration Ratebase $ 2,868 $ 1,126 $ 1,003 $ 1,711 $ 165 $ 996 $ 9 $ 7,879 Water Conservation Ratebase $ 44,233 $ 17,366 $ 15,476 $ 26,397 $ 2,552 $ 15,369 $ 144 $ 121,535 Other Revenues Ratebase $ (481,398) $ (189,000) $ (168,424) $ (287,281) $ (27,771) $ (167,260) $ (1,562) $ (1,322,696) Direct - Franchise Fee/PILOT Ratebase $ 651,824 $ 255,910 $ 228,050 $ 388,984 $ 37,603 $ 226,474 $ 2,115 $ 1,790,961 Rate Funded Capital Ratebase $ 422,113 $ 165,724 $ 147,682 $ 251,901 $ 24,351 $ 146,661 $ 1,370 $ 1,159,803 Depreciation Expense Ratebase $ 1,618,428 $ 635,406 $ 566,231 $ 965,818 $ 93,365 $ 562,317 $ 5,251 $ 4,446,816 Total $ 15,638,600 $ 4,973,440 $ 2,008,449 $ 3,605,501 $ 4,980,932 $ 2,099,188 $ 45,038 $ 33,351,148 Report
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The cost pools are further broken down and related to customer classes as follows:

Cost Pool Classification Customer Classes
Base Commodity
Tier 1, Tier 2, Tier 3, Golf Course, 12” Meter
(proportional share)
Max Day Commodity
Max Hour Commodity
Distribution Facilities Monthly Meter Service Charges
Customer Monthly Meter Service Charges
Fire Protection Monthly Meter Service Charges, Fire Service Hydrants Monthly Meter Service Charges, Fire Service
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Summary Classification of Costs
Based on the calculations shown on Table 16, the table below (Table 17) summarizes the classification of system costs and the primary cost category drivers (“Allocation Category”) used for allocation.

The expenses related to fire protection and hydrants will be further allocated between Hydrants (public fire protection) and Private Fire Service lines.

Table 17 – Classification Summary
Allocation Category Total ($) Allocation Basis Description Base Commodity $15,638,600 Commodity Sales Annual volume for each customer class Max Day Commodity $4,973,440 Est. Usage Max Day Each customer class' proportional share of max day usage Max Hour Commodity $2,008,449 Est. Usge Max Hour Each customer class' proportional share of max hour usage Distribution Facilities $3,605,501 Meter Capacity Ratios Maximum output of each meter size (hydraulic capacity factor) Customer $4,980,932 Customer Allocation Factors Customer service, meter reading, and billing costs Fire Protection $2,099,188 Direct to Fire Protection Oversizing of distribution system for fire events Hydrants $45,038 Direct to Hydrants Direct expenses related to hydrant maintenance Total $33,351,148
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Fire Protection Cost Breakdown
ALW‘s total expenses for fire protection costs are $2.1M for FY2027. Fire protection costs are allocated to fire protection classes based on the potential fire flow requirements determined by the number and size of the fire lines.

The usage volumes reflected in the fire protection class are measured through detector check assemblies equipped with small bypass meters, commonly referred to as "tattletale" meters. These meters are not designed to record actual fire flow; rather, they capture only the minor, incidental flows that occur during routine system testing, periodic inspections, and minor flushing activities. As a result, the recorded usage volumes for fire protection customers are small and do not represent the full capacity of the fire service connection.

The cost of building and maintaining system capacity to deliver fire protection flows, including the sizing of transmission mains, pumping facilities, and storage infrastructure necessary to meet potential fire flow demands, is addressed separately within the capacity cost allocation, outlined in Table 27 – Fire Protection Demand Factors. Because fire protection represents an immediately available standby service that must be available on demand but is rarely used to its full capability, the associated infrastructure costs are allocated based on the size of the fire service connection (a proxy for potential peak flow demand) rather than metered consumption. This approach is consistent with AWWA M1 cost-of-service principles and reflects the true cost driver of fire protection service; system readiness, not volumetric use.

Figure 2 – Breakdown of Fire Protection Costs
Private Fire
Protection
40%
Public Hydrants
60%
Fire Protection Cost
Private Fire Protection Public Hydrants
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Relationship to Rate Design
This classification framework ensures that:
 Costs are assigned based on how they are incurred,
 Customers are charged based on the demands they place on the system, and  Rates reflect the proportional cost of service attributable to each customer class and level of usage.

In particular, the distinction between base demand and extra capacity costs provides the foundation for the tiered rate structure, where higher tiers reflect the additional costs associated with meeting peak demand conditions.

Cost Category Billing Component Description
Customer Related Costs Fixed Meter
Service Charges
Costs incurred to serve each customer regardless of the volume of water used, including meter reading and billing, customer service and administration, meter maintenance and
replacement, service connections, and the minimum-size
portion of the distribution system. Driven by number of customers and meters.

Base Demand Costs Usage Charges
Costs required to meet average, continuous system demand under normal operating conditions, including treatment and transmission capacity, a portion of distribution infrastructure, and general system operations. Driven by average system usage; allocated based on total consumption across all
customers.

Extra Capacity
(Peak Demand) Costs Usage Charges
Additional investment required to size and maintain key infrastructure — pump stations, storage facilities, and transmission and distribution mains — to meet peak demand conditions. Customers with higher seasonal or discretionary usage bear a greater share, reflecting the principle that system capacity must be designed for peak requirements.

Base Commodity
(Volume Related) Costs Usage Charges
Costs that vary directly with the volume of water produced and delivered, including purchased water, chemicals and treatment inputs, energy for pumping and treatment, and other variable operating expenses. Driven by total water consumption.

The base, maximum day, and maximum hour demand factors used in this cost-of-service analysis were developed in accordance with the American Water Works Association (AWWA) M1 Manual — Principles of Water Rates, Fees, and Charges. Following the M1 methodology, each factor reflects the relative demand placed on the water system compared to average system conditions and is used to allocate capacity related costs proportionally.

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The factors were calculated using diversity ratios derived from ALW’s billing and production data. For each Customer Class in Table 18, the Base factor (“Base – A”) represents the average day demand. The Maximum Day (“MD – A”) factor is calculated by adjusting the average day demand by the monthly-toaverage-day ratio, the system maximum month-to-maximum day ratio, and a weekly adjustment factor.

The Maximum Hour (“MH – A”) factor is derived by applying the class’s maximum hour ratio to average day demand. The resulting factors serve as the basis for allocating extra capacity costs to each usage designation.

Further explanation of how diversity ratios were derived is provided in Appendix A: Development of Annual Average Day, Maximum Day, and Peak Hour Class Demand Factors.

Table 18 – Diversity Ratios
The results in Table 19 indicate a clear difference between average usage and peak demand contributions across tiers. Tier 1, which represents approximately one-quarter of annual usage, contributes minimally to peak demand, whereas Tier 3 accounts for a disproportionate share of maximum day demand. The Max Day and Max Hour Commodity columns in Table 19 are calculated using the diversity ratios outlined in Table 18. The Commodity Sales column is calculated using the percentage of the total annual usage identified for each customer class.

Table 19 – Commodity Allocation % By Customer Class
Because system capacity is designed to meet peak demand conditions, these findings support allocating a greater share of capacity related costs to higher usage tiers. Commodity costs continue to be allocated based on total consumption, with the exception of fire protection. Fire protection usage volumes are Customer Class Base - A MD - A MH - A
12" Meter 1.12 0.67 0.89
Golf Course Rate 0.14 0.19 0.17
Tier 1 Usage 3.60 0.46 2.03
Tier 2 Usage 5.27 2.75 4.01
Tier 3 Usage 5.08 4.24 4.66
Customer Class
Commodity
Sales
Max Day
Commodity
Max Hour
Commodity
Fire Protection 0.57% 0.65% 1.32%
12" Meter 7.33% 7.97% 7.50%
Golf Course Rate 0.92% 2.29% 1.40%
Tier 1 Usage 23.51% 5.47% 17.02%
Tier 2 Usage 34.46% 32.88% 33.65%
Tier 3 Usage 33.21% 50.73% 39.11%
Total 100.00% 100.00% 100.00%
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based on metered flows through bypass (detector check) assemblies and are comparatively small, as they reflect only incidental testing and flushing flows rather than actual fire event demand.

This allocation methodology reflects cost causation and ensures that each customer class and tier bears its proportional share of system costs.

Table 20 – Commodity Allocation by Recovery Mechanism and Factor Table 20 above presents the allocation of commodity related costs to each customer class and usage tier.

The commodity costs, derived from Table 16, have been separated into three components base demand, maximum day demand, and maximum hour demand to reflect the different cost drivers within the water system.

The cost structure supports the use of a three-tier design to differentiate between base, mid-level, and peak water usage, consistent with the underlying cost drivers of the system. These adjustments reflect updated allocations of demand related costs associated with serving these classes. The rates for each Customer Class are calculated by dividing the total cost of providing service to each class, outlined in Table 20, by the total volume of water used by each class, provided in Table 15.

Table 21 – Cost Based Usage Rates Compared to Current Rate by Tier  An identified increase in all tiers are shown reflecting the overall revenue requirements and updated cost allocations.
 The rate structure remains inclining, with higher tiers priced above lower tiers to reflect increased system costs associated with higher usage levels.
 The incremental increase between tiers aligns with the cost-of-service findings, where higher usage tiers contribute more significantly to peak demand and system capacity requirements.

Commodity Group Fire Protection 12" Meter Golf Tier 1 Tier 2 Tier 3 Total Base Commodity $88,669 $1,146,541 $144,394 $3,676,920 $5,388,614 $5,193,462 $15,638,600 Max Day Commodity $32,396 $396,474 $114,072 $272,254 $1,635,271 $2,522,973 $4,973,440 Max Hour Commodity $26,525 $150,685 $28,057 $341,794 $675,911 $785,477 $2,008,449 Total $147,590 $1,693,700 $286,524 $4,290,968 $7,699,797 $8,501,911 $22,620,489

SPECIAL & LARGE CUSTOMER CHARGES
Customer Class Location Accounts Calc. Rate ($/mo)
Curr. Rate
($/mo) $ Change
12" Meter In-City 1 $4.14 $3.14 $1.00
Golf Course Rate In-City 1 $5.56 $3.64 $1.92
COMMODITY USAGE RATES ($/CCF)
Customer Class Volume (CCF) Calc. Rate ($/CCF)
Curr. Rate
($/CCF) $ Change
Tier 1 Usage Base 1,313,404 $2.91 $2.30 $0.6101
Tier 2 Usage Mid 1,924,825 $4.12 $3.42 $0.7043
Tier 3 Usage Peak 1,855,116 $4.71 $3.91 $0.7970
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Analysis of Tier Breakpoints and Cost of Service by Tier Tier breakpoints vary by meter size and are designed to reflect the relative capacity requirements associated with different customer classes as discussed in the following section. UFS recommends no changes to the current tier breakpoints.

In evaluating the current tier structure, the following key factors were considered.

1. Review of Tier Block Sizing – Tier volumes were evaluated relative to meter size to ensure consistency with expected usage patterns and capacity requirements.

2. Analysis of Usage Patterns within each Tier – Usage data was analyzed by tier to assess infrastructure utilization and support the allocation of capacity related costs across tiers.

3. Alignment of Tier One with Fixed Distribution Cost Recovery – A minimum sizing analysis was performed to identify the portion of distribution system capacity recovered through the customer charge. This minimum level of capacity, which is already recovered through fixed charges, is excluded from the first volumetric tier and appropriately reassigned to higher tiers to avoid double recovery.

Review of Tier Block Sizing
Under ALW’s current rate structure, customers with different meter sizes are assigned distinct usage "blocks" or "tiers," which define the volume thresholds for water consumption. The unit price of water (e.g., per CCF, where 1 CCF = 100 cubic feet) varies depending on the tier in which a customer’s usage falls, with higher tiers generally reflecting increased demand on system capacity.

Because tier breakpoints vary by meter size, a reasonableness test was conducted to evaluate whether these thresholds are appropriately scaled relative to expected usage and system capacity requirements.

The table below summarizes the current tier breakpoints by meter size.

Table 22 – Tier Breakpoints by Meter Size
Meter Size Tier One Tier Two Tier Three
3/4 0-4 CCF 5-15 CCF Excess
1 0-7 CCF 8-25 CCF Excess

1.5 0-15 CCF 16-50 CCF Excess
2 0-23 CCF 24-80 CCF Excess
3 0-47 CCF 48-159 CCF Excess
4 0-73 CCF 74-249 CCF Excess
6 0-145 CCF 146-498 CCF Excess
8 0-233 CCF 234-797 CCF Excess
10 0-610 CCF 611-2,092 CCF Excess
12 0-770 CCF 771-2,640 CCF Excess
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A customers meter size is based on their potential maximum water demand and ensures that the meter has sufficient capacity to meet that demand. It is therefore reasonable to expect that average usage increases with meter size. For example, a ¾ inch customer averages approximately 12 CCF per month, while a 2-inch meter customer averages approximately 107 CCF per month. This relationship was confirmed through review of monthly billing data.

To determine the reasonableness of the tier breakdowns, UFS compared the current tier level by meter size (Cap Ratio) to AWWA meter capacity ratios. The section below describes this process.

Cap Ratio:

The Cap Ratio is calculated by dividing the tier breakpoint for a given meter size by the corresponding breakpoint for the base (¾ inch) meter. For example, with a 4-inch meter Tier 1 cap of 73 CCF compared to a ¾ inch cap of 4 CCF results in a ratio of 18.25.

Meter Capacity Ratio:

The Meter Capacity Ratio reflects the relative demand capacity of each meter size and is based on standard demand ratios used in cost of service studies, as published in the American Water Works Association M1 Manual. For example, the capacity ratio for a 4-inch meter is 20.0.

These ratios were compared to evaluate whether the tier breakpoints are appropriately scaled relative to the capacity demands associated with each meter size. For most meter sizes, the Cap Ratios closely align with the AWWA meter capacity ratios, indicating that the current tier block sizing is reasonable and consistent with cost-of-service principles.

Table 23 and Table 24 shows the results of the comparison.

Table 23 – Tier One Block Usage Test
Meter Size Tier One Cap
Tier 1
Breakpoint
Capacity Usage
Ratio
Meter Capacity
Ratio based on
Meter Type
3/4 4 1.00 1.00
1 7 1.75 1.67

1.5 15 3.75 3.33
2 23 5.75 5.33
3 47 11.75 11.67
4 73 18.25 20.00
6 145 36.25 50.00
8 233 58.25 116.67
10 610 152.50 140.00
12 770 192.50 176.67
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Table 24 – Tier Two Block Usage Test
Meter Size Tier Two Cap
Tier 2
Breakpont
Cpacity
Usage Ratio
Meter
Capacity
Ratio
3/4 15 1.00 1.00
1 25 1.67 1.67

1.5 50 3.33 3.33
2 80 5.33 5.33
3 159 10.60 11.67
4 249 16.60 20.00
6 498 33.20 50.00
8 797 53.13 116.67
10 2092 139.47 140.00
12 2640 176.00 176.67
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Monthly Meter Service Charges
Fixed meter service charges are based on meter size to reflect the cost of providing and maintaining service connections, ensuring that each customer pays their fair share of the system’s fixed costs.

Table 25 below presents the allocation of customer related costs to each customer class based on meter size and service characteristics. Customer related costs include expenses associated with providing and maintaining service to individual customers, independent of water usage.

Table 25 – Meter Service Charge Cost Allocation by Component Customer related costs are allocated based on the principle that these costs are driven by the number and size of service connections, rather than the volume of water consumed. Larger meters and service connections require:
 Greater investment in meters and appurtenances,
 Larger service lines,
 Increased maintenance and replacement costs, and
 Higher administrative and operational support.

Accordingly, these costs are distributed among customer classes based on meter size equivalency factors, which reflect the relative cost of providing service to each connection.

Determination of Meter Equivalents
A meter equivalent is the maximum capacity of the utility’s smallest meter size compared with the maximum capacity of other meters. The meter equivalent ratios are standard factors used by AWWA per Table C-2 of the M1 Manual and correlated to the meter type used for each meter size. ALW’s base residential meter is ¾”.

A table of meter capacity factors was calculated using theoretical volume capacity of each meter size.

Table 26 indicates a 4-inch meter has 20 times more potential capacity than a 3/4-inch meter.

Cost Category In-City Meters Fire Protection Outside City Meters 12" Special Zone Golf Course Total Meters $294,530 $27,061 $366,801 $104 $70 $688,566
Services $72,381 $102,680 $72,873 $720 $204 $248,858
Customer Service $1,741,735 - $1,957,004 $2,223 $1,111 $3,702,073 Fire Protection $897,914 $82,499 $1,118,244 $318 $212 $2,099,188 Hydrants $19,705 - $25,329 $2 $2 $45,038
Distribution Facilities $1,785,294 - $1,797,416 $17,763 $5,027 $3,605,501 Billing $156,685 $8,399 $176,051 $200 $100 $341,435
Total $4,968,245 $220,639 $5,513,718 $21,331 $6,726 $10,730,658 Report
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Water Cost of Service Study Page 34
Table 26 – Meter Capacity Factors
A demand factor is used to bring various connection sizes for fire protection into equivalence. It is based on the Hazen-Williams equation. The demand factors used for fire protection are listed in Table 27.

Table 27 – Fire Protection Demand Factors
Customer related costs include the following components:
 Meters – Costs associated with meter purchase, installation, maintenance, and replacement  Services – Service line installation and maintenance
 Customer Service – Billing, account management, and administrative support  Fire Protection – Costs associated with fire service connections and readiness  Hydrants – Public fire protection infrastructure
 Distribution Facilities (Customer Portion) – Local distribution assets attributable to customer connections
 Billing – Meter reading, billing systems, and collection activities Each component is allocated based on the factor that best reflects how the cost is incurred, with meter size serving as the primary allocation basis.

Meter Size 3/4"

0.75 1.00

1.00 1.67

1.50 3.33

2.00 5.33

3.00 11.67

4.00 20.00

6.00 50.00

8.00 116.67

10.00 140.00

12.00 176.67
Private Fire
Meter Size
(Inches) Demand Factor
1 1.00
2 6.19
3 17.98
4 38.32
6 111.31
8 237.21
10 426.58
12 689.04
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The cost of service rate based on meter size is shown in the table below.

Table 28 – Cost Based Monthly Charges by Meter Size
Two customer classes warrant additional explanation regarding the rates reflected in the table above.

First, the 12-Inch customer is served under a negotiated contract rate rather than the standard meter size tariff. The cost-of-service results shown represent the estimated cost to serve this customer based on the methodology applied throughout this study; however, the actual charges billed to this customer are governed by the terms of the existing contract. ALW should review the contract periodically to ensure that the negotiated rate continues to reflect an equitable allocation of system costs.

Second, the Golf Course customer class has historically been served under a special volumetric rate. This rate is a uniform per-unit rate equal to the average cost of water for all other customers and established when the contract that originally governed golf course service expired. ALW has maintained this rate structure for golf course customers and intends to transition them to the standard tiered rate structure going forward. This transition aligns golf course charges with the cost-of-service findings and ensures that all customer classes bear their proportional share of system costs consistent with Proposition 218 requirements.

FIXED MONTHLY CHARGES ($/month)
Rate Class Annual Bills Calc. Rate ($/mo) Curr. Rate ($/mo) $ Change 3/4" Meter 216,152 $ 26.66 $ 19.00 $ 7.66
1" Meter 37,316 38.83 31.20 7.63

1.5" Meter 3,132 67.36 64.50 2.86
2" Meter 9,576 99.36 96.80 2.56
3" Meter 1,152 191.15 188.80 2.35
4" Meter 1,008 306.38 301.70 4.68
6" Meter 270 692.86 586.60 106.26
8" Meter 240 1,509.14 943.60 565.54
10" Meter 48 1,817.46 2,473.80 (656.34)
12" Meter 12 2,281.50 3,585.00 (1,303.50)
Golf Cours e Rate 12 692.86 586.60 106.26
5/8"-3/4" Lifeline 6,516 26.66 16.80 9.86
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Combined Cost Summary Results
Table 29 compares the cost-of-service rates for each customer class with the current rates. Charging these rates would directly match the cost of providing service to each customer class shown below.

Table 29 – Total Costs by Customer Class
Table 29 compares the current customer charges with the cost based customer charges and identifies the cost based commodity rates, averaged for each class. The table is not depicting the proposed rates but providing the cost to serve by customer class for FY2027.

Customer Class
No. of Customers
(Monthly Avg) /
Annual Usage (CCF)
COS Meter Rate
($/Month)
Current Rate
($/Month) Variance ($) Variance (%)
Meter Classes
3/4" Meter 18,013 $26.66 $19.00 $7.66 40.3%
1" Meter 3,110 $38.83 $31.20 $7.63 24.5%

1.5" Meter 261 $67.36 $64.50 $2.86 4.4%
2" Meter 798 $99.36 $96.80 $2.56 2.6%
3" Meter 96 $191.15 $188.80 $2.35 1.2%
4" Meter 84 $306.38 $301.70 $4.68 1.6%
6" Meter 22 $692.86 $586.60 $106.26 18.1%
8" Meter 20 $1,509.14 $943.60 $565.54 59.9%
10" Meter 2 $1,817.46 $2,473.80 ($656.34) (26.5%)
12" Meter 1 $2,281.50 $3,585.00 ($1,303.50) (36.4%)
Lifeline (3/4") 543 $26.66 $16.80 $9.86 58.7%
Fire Service
1" Fire Service 0 $4.42 $5.20 ($0.78) (15.0%)
2" Fire Service 146 $13.59 $13.90 ($0.31) (2.2%)
3" Fire Service 2 $29.89 $29.10 $0.79 2.7%
4" Fire Service 68 $58.72 $57.10 $1.62 2.8%
6" Fire Service 150 $156.28 $129.50 $26.78 20.7%
8" Fire Service 102 $320.47 $231.00 $89.47 38.7%
10" Fire Service 36 $564.55 $367.50 $197.05 53.6%
Special & Tiered Commodity Usage
12" Meter ($/CCF) 409,547 $4.14 $3.14 $1.00 31.7%
Golf Course ($/CCF) 51,578 $5.56 $3.64 $1.92 52.6%
Tier 1 Usage ($/CCF) 1,313,404 $2.91 $2.30 $0.61 26.5%
Tier 2 Usage ($/CCF) 1,924,825 $4.15 $3.42 $0.73 21.3%
Tier 3 Usage ($/CCF) 1,855,116 $4.69 $3.91 $0.78 19.9%
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4. Significant Assumptions
This section outlines the procedures used to develop the cost of service for ALW and the related significant assumptions.

Table 30 – Forecast Assumptions
Revenue Requirements
Forecasted revenue requirements were based on 2024 and 2025, and 2026 budget and adjusted for inflation. Table 31 is a summary of the revenue requirements used in the analysis.

Table 31 – Projected Revenue Requirements
Unit Sales
No change in sales was projected following FY2027. Unit sales were estimated using actual FY2025 usage and an average of usage reductions over the past 6 years. This assumption was then benchmarked against state conservation goals and discussed with management.

Depreciation Expense
Depreciation expense was projected based on historical capital additions and discussions with management on future capital additions.

Fiscal
Year Inflation
Change in
Water Use
Customer
Growth
Investment
Income
Capital
Improvements
Plan
2026 6.0% -3.7% 0.0% 1.5% $ 1,000,000
2027 6.0% -3.7% 0.0% 2.5% $ 18,000,000
2028 6.0% 0.0% 0.0% 2.5% $ 8,000,000
2029 4.0% 0.0% 0.0% 2.5% $ 8,000,000
2030 4.0% 0.0% 0.0% 2.5% $ 8,000,000
2031 4.0% 0.0% 0.0% 2.5% $ 8,000,000
Revenue Requirements Component
FY 2025
Actual
FY 2026
Proj.

FY 2027
Test Year
FY 2028
Proj.

FY 2029
Proj.

FY 2030
Proj.

FY 2031
Proj.

Total Operating Expenses $23,670,208 $25,494,581 $27,849,348 $30,530,318 $31,681,639 $33,082,696 $34,435,626 General Fund Transfer - - $1,184,340 $1,373,834 $1,593,648 $1,657,394 $1,723,690 Transfer Out $29,485 $29,485 $33,300 $34,960 $36,715 $38,545 $40,087 Debt Service $2,985,015 $3,096,813 $3,096,313 $4,621,317 $4,644,938 $4,645,838 $4,647,213 Rate-Funded Capital $1,892,316 $1,000,000 $2,100,670 $3,429,837 $8,000,000 $8,000,000 $8,000,000 Subtotal Requirements $28,577,025 $29,620,879 $34,263,971 $39,990,265 $45,956,939 $47,424,473 $48,846,615 Less: Discretionary Revenues $1,354,829 $814,878 $812,822 $810,633 $809,507 $811,960 $811,231 Less: Interest Income $673,681 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 Net Revenue Requirements $26,548,514 $28,706,001 $33,351,148 $39,079,633 $45,047,432 $46,512,513 $47,935,384 Report
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Water Cost of Service Study Page 38
Capital Improvements
The capital improvement projections were provided by ALW staff. Projections for 2027 – 2031 are outlined in Table 30.

Replacement Water Cost Adjustment Factor “RWCAF”
ALW currently uses a water cost adjustment factor to capture increases in cost of purchasing wholesale water for the following items:
• RDA Assessment for USGVMWD
• Supplemental water purchases for USGVMWD
• RDA Assessment for SGV
• Replacement water obligation for SGV
 Supplemental water purchases
 Purchased power
Approximately $0.842 per CCF of water supply costs associated with the four cost categories listed above is currently built into the calculation of rates proposed for approval effective 8/1/2026, based on estimated costs for FY2026. The $0.842 included a FY2025 cost of $0.618 plus an increase of $0.22 for FY2026. However, RWCAF costs are not currently included for any future rate calculations planned to be effective 7/1/2027 through 7/1/2030. For RWCAF costs incurred in each future year through 7/1/2030, prior to the effective date of the annual adjustment, ALW will identify the RWCAF costs (to replace the FY2026 cost of $0.842 per CCF) and calculate the corresponding rate increase per CCF of commodity charges in a manner consistent with the inclusion of FY2026 RWCAF costs in the planned rates to be effective 8/1/2026. Each such annual adjustment of rates based on RWCAF costs shall be effective no sooner than the City provides 30-days prior written notice to customers in accordance with Government Code Section 53756.

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5. Considerations and Additional Information
Financial Considerations

1. The Utility is projected to require the following approximate increases in the percentage of rates charged to customers, outlined in the “Additional Rate Adjustments” column of the table below. The actual proposed rate adjustments are shown in the table following section 6, below.

2. Cash balances are decreasing without changes in rates. Projected cash balances are below the suggested minimums during the projection period.

3. Debt Coverage Ratio is below suggested minimum levels throughout the projection period without changes in rates.

4. The current infrastructure of the Utility is older than the national average. The infrastructure in total is approximately 60% depreciated compared with the national average between 50% - 55%. It is important to continue annual system improvements.

Fiscal
Year
Previously
Approved
Rate
Adjustment
Additional
Rate
Adjustments
Projected Cash
Balances
Proposed
Minimum Cash
Reserve
City Min
Requirement
Debt
Coverage
Ratio
Bond Issues
Including Fees
2027 4.0% 12.0% $ 30,281,683 $ 15,297,191 $ 19,000,000 1.65 $ 25,000,000 2028 4.0% 12.0% $ 23,855,887 $ 17,033,619 $ 19,000,000 1.78 2029 16.0% $ 22,165,547 $ 17,433,622 $ 19,000,000 2.87
2030 4.0% $ 20,915,204 $ 17,847,043 $ 19,000,000 2.98
2031 4.0% $ 20,224,255 $ 18,254,894 $ 19,000,000 3.12
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6. Proposed Rate Design
To meet revenue needs and move classes toward their cost of service, the following rate schedule was developed for the next five years.

Table 32 – Projected Revenue Requirements
Rates Current 8/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030 Monthly Meter Service Charge
3/4" $ 19.00 $ 22.00 $ 25.50 $ 29.50 $ 32.50 $ 36.00
1" 31.20 36.25 43.00 50.00 52.00 54.00
1 1/2" 64.50 72.00 80.00 87.00 90.00 92.00
2" 96.80 108.00 118.00 130.00 133.00 136.00
3" 188.80 211.00 229.00 250.00 255.00 261.00
4" 301.70 338.00 366.00 400.00 408.00 418.00
6" 586.60 657.00 757.00 875.00 900.00 940.00
8" 943.60 1,100.00 1,400.00 1,800.00 1,900.00 2,040.00
10" 2,473.80 2,473.80 2,473.80 2,473.80 2,473.80 2,473.80 12" 3,585.00 4,178.11 4,178.11 4,317.04 4,317.04 4,628.60 3/4" Lifeline Rate 16.80 19.80 23.30 27.30 30.30 33.80
Monthly Fire Service Charge
1" Fire Service $ 5.20 $ 6.20 $ 7.20 $ 8.20 $ 9.20 $ 10.20 2" Fire Service 13.90 15.00 17.00 18.00 19.00 20.00
3" Fire Service 29.10 32.00 36.00 40.00 42.00 43.00
4" Fire Service 57.10 62.00 70.00 79.00 82.00 85.00
6" Fire Service 129.50 140.00 170.00 205.00 215.00 225.00 8" Fire Service 231.00 260.00 331.20 413.60 437.60 462.40 10" Fire Service 367.50 415.00 556.00 719.00 766.00 815.00 12" Fire Service 523.70 575.00 636.00 822.00 876.00 932.00 Usage Charge Per CCF
Tier 1 $ 2.30 $ 2.92 $ 3.43 $ 4.01 $ 4.13 $ 4.22
Tier 2 3.42 4.24 4.97 5.82 5.99 6.12
Tier 3 3.91 4.82 5.66 6.62 6.81 6.96
12" Meter 3.14 4.07 4.07 4.21 4.21 4.51
Golf Course 3.64
RWCAF:

All Commodity $ 0.22 $ - $ - $ - $ - $ -
Revenue from Rate 27,985,222 $ $ 32,462,857 $ 37,656,914 $ 43,682,021 $ 45,429,302 $ 47,246,474 Change from Previous 16.0% 16.0% 16.0% 4.0% 4.0%
Golf course billed on Tiered Usage Charge per CCF above Report
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Water Cost of Service Study Page 41
The 12-inch meter customer is served under a negotiated contract rate rather than the standard meter size tariff. The rates reflected in the table above represent the estimated results for this customer class given current assumptions, however, the actual charges billed are governed by the terms of the existing contract between ALW and the customer.

The Golf Course customer class was previously served under a special rate structure, a uniform volumetric rate equal to the average cost of water for all other customers established when an earlier service contract expired. As part of this rate study, ALW is transitioning golf course customers to the standard tiered rate structure that applies to all other retail customers. This transition aligns golf course charges with the costof-service findings developed in this study and ensures that the Golf Course class bears its proportional share of system costs, consistent with the requirements of Proposition 218.

The lifeline rate subsidy was funded through discretionary revenues. This approach allowed Azusa Light & Water to provide rate relief to low-income customers without requiring additional funding to be created through utility rates.

As described above, the rate schedule incorporates RWCAF costs in the calculation of the proposed Year 1 rates (August 2026). RWCAF costs for future years (between 7/1/2027 and 7/1/2030) will be incorporated in the rate calculation as an annual passthrough of ALW’s costs. Water supply costs for the cost centers recovered through the RWCAF and described in the previous section, are partially recovered through the tiered usage charges per CCF. The amount of these RWCAF costs recovered within the tiers to be effective 8/1/2026 is $0.842 per CCF, which includes $0.618 per CCF in costs included in the calculation from FY2025 plus $0.22 per CCF in costs that were added as a “true up.” This amount, $0.842 per CCF, represents the FY 2027 costs for the cost centers previously mentioned.

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Residential Analysis – ¾” Meter
Residential accounts are primarily comprised of ¾” meters. The average use and projected monthly change in bills are provided by usage level (CCF).

Seasonal
Average
Average
Consumption
(CCF)
Summer 13.00
Winter 11.00
Annual 12.00
Monthly $ Change by Usage
Usage Level
(CCF) 8/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030
2 $ 3.80 $ 4.51 $ 5.17 $ 3.23 $ 3.68
5 $ 5.18 $ 6.26 $ 7.18 $ 3.64 $ 4.00
8 $ 6.96 $ 8.45 $ 9.72 $ 4.14 $ 4.39
11 $ 8.74 $ 10.65 $ 12.26 $ 4.65 $ 4.79
12 $ 9.14 $ 11.19 $ 12.87 $ 4.77 $ 4.89
13 $ 9.74 $ 11.92 $ 13.72 $ 4.94 $ 5.02
14 $ 10.42 $ 12.75 $ 14.68 $ 5.14 $ 5.17
17 $ 12.48 $ 15.26 $ 17.57 $ 5.71 $ 5.62
20 $ 14.54 $ 17.76 $ 20.46 $ 6.29 $ 6.08
23 $ 16.61 $ 20.26 $ 23.34 $ 6.87 $ 6.53
26 $ 18.67 $ 22.76 $ 26.23 $ 7.45 $ 6.98
29 $ 20.73 $ 25.27 $ 29.12 $ 8.03 $ 7.43
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
2 5 8 11 12 13 14 17 20 23
Monthly Water Consumption (CCF)
Residential Bill Comparison
Current vs. Proposed FY2027
Current Rates Proposed FY2027
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Azusa Light & Water
Water Cost of Service Study Page 43
Commercial Analysis – 2” Meter
Seasonal
Average
Average
Consumption
(CCF)
Summer 120
Winter 101
Total 108
Monthly $ Change by Usage
Usage Level
(CCF) 8/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030

48.0 $ 34.30 $ 42.67 $ 48.46 $ 10.29 $ 8.49

60.0 $ 42.55 $ 52.68 $ 60.02 $ 12.60 $ 10.30

72.0 $ 50.79 $ 62.70 $ 71.57 $ 14.92 $ 12.11

84.0 $ 59.04 $ 72.71 $ 83.13 $ 17.23 $ 13.91

96.0 $ 67.28 $ 82.72 $ 94.68 $ 19.54 $ 15.72
102.0 $ 71.40 $ 87.72 $ 100.46 $ 20.69 $ 16.63
108.0 $ 75.52 $ 92.73 $ 106.23 $ 21.85 $ 17.53
120.0 $ 83.77 $ 102.74 $ 117.79 $ 24.16 $ 19.34
132.0 $ 92.01 $ 112.75 $ 129.34 $ 26.47 $ 21.15
144.0 $ 100.26 $ 122.76 $ 140.90 $ 28.78 $ 22.95
156.0 $ 108.50 $ 132.77 $ 152.45 $ 31.09 $ 24.76
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Azusa Light & Water
Water Cost of Service Study Page 44
Drought Rate Schedule
If CCF sales decrease beyond the currently expected levels, ALW still holds a fiduciary responsibility to meet revenue requirements. Drought rates are developed for use when conservation required by the State increases or if the Utility Board declares more severe drought stages, or for any other reason ALW has a severe decline in water usage. The intent of the drought rate is to ensure ALW can meet financial obligations under such conditions.

The drought rate analysis takes into account the reduction in actual water usage. To conduct the analysis, UFS quantified the projected revenue shortfall per unit, with adjustments for reduced pumping and treatment expense, under each of the four stages of conservation.

The drought rate schedule is applicable to Tier 1, Tier 2, and Tier 3 usage which applies to all retail customers, fire protection usage, and the golf course.

Stage Annual Usage (CCF) Conservation Level
Baseline 5,176,596
I 4,917,766 -5%
II 4,658,937 -10%
III 4,400,107 -15%
IV 4,141,277 -20%
COMMODITY DROUGHT RATE SCHEDULE 2027 2028 2029 2030 2031 Commodity Charges Tier 8/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030 1 $ 3.13 $ 3.66 $ 4.28 $ 4.40 $ 4.50
2 4.54 5.31 6.20 6.38 6.53
3 5.16 6.04 7.06 7.27 7.43
12" Meter 4.36 4.35 4.49 4.49 4.81
1 $ 3.28 $ 3.85 $ 4.50 $ 4.63 $ 4.73
2 4.76 5.58 6.52 6.71 6.86
3 5.42 6.35 7.42 7.64 7.80
12" Meter 4.57 4.57 4.71 4.71 5.05
1 $ 3.46 $ 4.05 $ 4.74 $ 4.88 $ 4.99
2 5.01 5.88 6.87 7.07 7.23
3 5.70 6.69 7.82 8.05 8.23
12" Meter 4.82 4.81 4.97 4.97 5.33
1 $ 3.65 $ 4.28 $ 5.01 $ 5.16 $ 5.27
2 5.30 6.21 7.27 7.48 7.65
3 6.03 7.07 8.27 8.51 8.70
12" Meter 5.09 5.09 5.26 5.26 5.64
Drought Phase I Level of
Conservation
-5% from Baseline
Drought Phase II Level of
Conservation
-10% from Baseline
Drought Phase III Level of
Conservation - 15% from Baseline
Drought Phase IV Level of
Conservation
-20% from Baseline
Report
Azusa Light & Water
Water Cost of Service Study Page 45
Appendix A
Development of Annual Average Day, Maximum Day, and Peak Hour Class Demand Factors This appendix documents the methodology used to develop class demand factors for the water costof-service study. Demand factors are statistical measures of demand that characterize how different customer classes place loads on the water system. These factors form the analytical foundation for allocating capacity-related costs to customer classes in proportion to the demands they impose on the system.

Three usage factors are discussed in this analysis: 1) Annual Average Daily Usage 2) Maximum Day Usage, and 3) Maximum Hour Usage. Each factor is used to identify the allocation of costs associated with the facilities and operational capacity required to serve that specific demand characteristic. The sections below describe the calculation methodology for each factor and present the resulting values by customer class.
1) Calculation of Annual Average Daily Usage
Annual Average Daily Usage (AADU) represents the total volume of water consumed over a one-year period divided by 365 days. This measure reflects the average day-to-day demand placed on the water system and serves as the foundation for allocating costs associated with facilities and operations utilized consistently throughout the year, including treatment, routine pumping, storage turnover, and general system maintenance. Because these costs are driven by overall annual consumption rather than short-term peak demands, AADU is commonly used to allocate base or commodity-related costs in a cost-of-service study.

Table 33 – Average Annual Daily Usage
Maximum Month Usage
Maximum Month Usage reflects the highest total monthly water consumption recorded during the year. This measure identifies seasonal increases in demand and the additional system capacity required to serve periods of elevated usage, such as summer irrigation or seasonal commercial activity. By comparing maximum month usage to annual average usage, the analysis quantifies the additional infrastructure and operational requirements needed to accommodate extended periods of aboveaverage demand. Costs associated with source capacity, treatment capacity, and transmission facilities are often partially allocated using this demand characteristic because these facilities must be sized to reliably meet sustained seasonal peaks.

Class Annual Usage Average Daily Usage Percent of Total Fire Service 31,673 87 0.57%
12" Meter Special Zone 409,547 1,122 7.33%
Golf Course Rate 51,578 141 0.92%
Tier 1 Usage 1,313,404 3,598 23.51%
Tier 2 Usage 1,924,825 5,273 34.46%
Tier 3 Usage 1,855,116 5,083 33.21%
15,304.50 100.00%
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Table 34 – Maximum Month Usage
2) Calculation of Maximum Day Usage
Maximum Day Usage represents the single highest day of water demand during the year. This measure is critical in evaluating the capacity requirements of the water system because production, treatment, pumping, and transmission facilities must be capable of meeting these short-duration peak demands while maintaining adequate pressure and reliability. Maximum day demand is commonly associated with outdoor irrigation, weather-related consumption spikes, or unusually high customer usage events.

In cost-of-service studies, maximum day usage is frequently used to allocate costs related to treatment plant capacity, major pumping facilities, and transmission infrastructure sized to accommodate these peak daily requirements.

Table 35 – Maximum Day Usage
System MD/MM Ratio — The Maximum Day to Maximum Month (MD/MM) Ratio measures the system’s highest single-day demand compared to the average daily demand during the peak month of the year. Average Daily Production during the Maximum Month was 18.43 million gallons per day (MGD), while the three-year average Maximum Day demand was 20.54 MGD, resulting in a System MD/MM Ratio of 1.11.

Weekly Adjustment Factor — This factor recognizes that water usage is not uniform throughout the week; certain days may experience significantly higher demand due to irrigation patterns, commercial activity, weather conditions, or customer behavior.

Usage on the Maximum Day — Reflects each customer class’s estimated demand during the system’s peak day conditions. Calculated by multiplying the Average Daily Usage during the Maximum Month by the System MD/MM Factor and the Weekly Adjustment Factor.

Class Max Month Usage Billing Days in Period Max Month Daily Usage Fire Service 3,805 30 127
12" Meter Special Zone 44,253 31 1,428
Golf Course Rate 9,259 31 299
Tier 1 Usage 109,154 30 3,638
Tier 2 Usage 185,020 30 6,167
Tier 3 Usage 215,012 30 7,167
Total 566,502.56 18,825.73
Class
Average Day Max
Month
System MD/MM
Ratio
Weekly Usage
Adjustment Usage on Max Day
Max Day less
Average Day Allocation %
Fire Service 127 1.11 1.00 141 54 0.65%
12" Meter Special Zone 1,428 1.11 1.12 1,788 666 7.97%
Golf Course Rate 299 1.11 1.00 333 192 2.29%
Tier 1 Usage 3,638 1.11 1.00 4,056 457 5.47%
Tier 2 Usage 6,167 1.11 1.17 8,020 2,747 32.88%
Tier 3 Usage 7,167 1.11 1.17 9,320 4,238 50.73%
Total 23,658.35 8,353.85 100.00%
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Max Day Less Average Day — Max Day usage is reduced by the class’s Average Daily Usage. The purpose of the maximum day allocation is to identify only the incremental demand placed on the system above normal average-usage levels. This allocation represents the additional infrastructure and operational capacity needed to accommodate peak demands beyond normal day-to-day usage. 3) Calculation of Maximum Hour Usage
Maximum Hour Usage measures the highest hourly demand placed on the system during the year and represents the most intense short-term stress on the utility’s infrastructure. This measure is particularly important for evaluating the sizing requirements of distribution mains, storage facilities, pumping stations, and pressure zones. Water systems must maintain sufficient capacity to satisfy these short-duration peaks while continuing to provide adequate fire protection and system reliability.

Maximum hour demand is often driven by concentrated residential usage patterns, commercial operations, irrigation systems, or other simultaneous high-demand events. Because these demands require the utility to maintain substantial standby and delivery capacity, maximum hour usage is commonly used to allocate distribution- and storage-related costs within a cost-of-service analysis.

Table 36 – Maximum Hour Usage
Usage on Max Day – Provided in Table 35.

Concentrated Usage Ratio measures the degree to which a customer class’s water usage varies throughout the day. Unlike annual or seasonal demand measures, certain customer classes may concentrate a significant portion of their usage during short-duration peak periods. To account for this variation, the ratio was applied consistently to each customer class.

Peak Hour Usage — The peak usage for each class, representing the class's impact on pumping, distribution, and transmission facilities.

Peak Hour less Max Day - Peak Hour Usage is reduced by Maximum Day Usage to isolate the incremental demand placed on the system during peak hourly conditions.

Class
Usage on Max
Day
Concentrated Usage
Ratio Peak Hour Usage
Peak Hour Less
Max Day Allocation %
Fire Service 141 1.50 212 71 0.60%
12" Meter Special Zone 1,788 1.50 2,682 894 7.56%
Golf Course Rate 333 1.50 499 166 1.41%
Tier 1 Usage 4,056 1.50 6,084 2,028 17.14%
Tier 2 Usage 8,020 1.50 12,030 4,010 33.90%
Tier 3 Usage 9,320 1.50 13,980 4,660 39.40%
Total 23,658.35 35,487.53 11,829.18 100.00%

Azusa City CouncilJuly 27, 2026

Azusa City Council
July 27, 2026