The Reading Area Water Authority retained the services Keystone Alliance Consulting to prepare a water rate study. The purpose of the study was to determine the adequacy of revenues under the existing rates, calculate the cost of providing service to the various customer classes, project these costs for the study period, and provide recommendations for water rates that to the extent possible mirror the cost of service.

The following tasks were performed in connection with the cost of service study:

• Reviewed prior audited financial data as well as the operating budgets for current and next fiscal year in an effort to prepare a baseline analysis of the revenues and expenses and discern any financial trends for forecasting purposes.
• Determined the annual revenue requirements of the Authority’s operations for the study period, including operating expenses and, debt service.
• Analyzed the pattern of water customer usage for the previous 12-month period in order to predict the revenue to be generated under any proposed rate structure.
• Compared the revenues projected for the study period under the current rate structure with the annual revenue requirements and quantified any deficiencies.
• Allocated the revenue requirements for each year among the related functional categories (supply, pumping, treatment, etc.) of the water system.
• Distributed the allocated requirements among the cost components (base cost, extra capacity, and customer cost) in conformance with the base-extra capacity cost method described in the American Water Works Association (AWWA) Manual M1.
• Analyzed the demand profiles of each customer class.
• Calculated the cost of service for each customer class (residential, commercial, industrial, and public) according to the respective responsibility of the customer class for each of the cost components.
• Developed a rate structure based, in part, on the cost of service modeling.

The study determined the cost for the Authority to provide water service and calculated a rate structure based on those costs for each year of the study period. The calculated cost of service rates were used as a reference during the rate setting purposes and ultimately, the Authority adopted a rate structure that selectively incorporates the results of the Keystone report without a major disruption in its current billing practice and philosophy.