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<br /> <br /> Page | 3 <br />Cost of Services <br />Return on Rate Base <br />Return on rate base provides a rate of return on the capital investment required to <br />provide water service to SPRWS’ customers. The underlying logic is that SPRWS should <br />receive a return on its invested capital from nonowner customers because they do not <br />share in financing SPRWS’ capital improvements except through the cost of <br />depreciation. The revenue requirements associated with “a return on rate base” are <br />calculated by multiplying the present worth of the asset (the original cost minus <br />accumulated depreciation adjusted to its present worth) by an inflation factor to bring it to <br />its present value. The 2017 and 2019 studies used the Handy Whitman Index to <br />determine the present worth. Neither SPRWS nor Baker Tilly currently subscribe to this <br />index so the long-term average increase in the American and City Municipal <br />Construction cost index was used for the present worth calculations. A spot check of this <br />index against the Handy Whitman Index found negligible differences. The estimated <br />present worth of SPRWS’ assets by functional area were calculated from the asset <br />database provided for this analysis. These present worth costs were then allocated to <br />retail and wholesale customers based on consumption data. The average consumption <br />data for the period 2017 through 2021 was used for this purpose. This data is shown <br />below. The data showed a fairly large reduction for the U of M from the 2019 study <br />average of 153.15 million gallons per year (MGY) to 117.51 MGY for this study. <br /> <br />Water Demand (MGY) <br /> <br />The average day, max day and max hour relative volumes were determined to be as <br />shown in the table below for each customer. <br /> <br />The allocation percentages for the base extra capacity method using the consumption <br />data are shown in the table below. <br /> <br />Base <br />Base Extra Capacity Capacity Max Day Max Hour Total <br />Total Capacity (MGD)33.79 62.02 186.06 <br />Percent Allocation <br />Avg Day and Max Day 54%46%0%100% <br />Avg Day and Max Hour 18%0%82%100% <br />Avg Day, Max Day and Max Hour 18%33%49%100% <br />Extra Capacity <br />Year Roseville (MGY) <br />Little Canada <br />(MGY) <br />Wholesale <br /> U of M Retail (MGY) <br />Total <br />consumption <br />Water (MGY) <br /> Total Treated <br />Water (MGY) <br />2017 1,640.605604 353.181664 10,377.556024 12,371.343292 14,349.124731 <br />2018 1,714.346436 339.788724 10,309.872496 12,364.007656 14,469.866214 <br />2019 1,629.465640 337.297884 9,930.225844 11,896.989368 14,121.936735 <br />2020 1,708.833676 355.041940 105.170296 9,782.851144 11,951.897056 14,005.936735 <br />2021 1,878.726168 383.789076 129.864020 10,337.531292 12,729.910556 <br /> <br />14,647.457608 <br />Average 1,714.395505 353.819858 117.517158 10,147.607360 12,262.829586 14,236.716104 <br />Customers MGY MGD % of Total MGD <br />Retail Customers 10,147.61 27.80 82.28%51.03 82.28%153.09 82.28% <br />Roseville 1,714.40 4.70 13.90%8.62 13.90%25.86 13.90% <br />Little Canada 353.82 0.97 2.87%1.78 2.87%5.34 2.87% <br />U of M 117.52 0.32 0.95%0.59 0.95%1.77 0.95% <br />Total 12,333.34 33.79 100.00%62.02 100.00% 186.06 100.00% <br />Average Day Max Day Max Hour