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Section 3 <br />Cost-of-Service <br />A cost-of-service analysis was performed to determine the allocated cost to serve <br />ERMUwithin the waterutility. Customer classes exist, in part, <br />because the cost to serve differentkinds of customers varies. The cost-of-service <br />analysis has been performed on a2019actual2019 <br />financials, operations and sales. The results of the cost-of-service study give an <br />indication of the degree of revenue recovery warranted for each class of <br />customers. A comparison of the allocated cost to serve a class of customers and <br />the actual revenues received from that class is taken into consideration during rate <br />design. <br />Functionalization of Costs <br />ERMUwater revenue requirements have been divided into four <br />functional categories. These categories are described below. <br />Plantcosts associated with ERMUsource of supplyandpumping. <br />Distribution distribution expenses are related to the ERMUsystem for delivering <br />water to ERMUcustomers over the local pipeline system. <br />Customer these costs are fixed costs associated with the service facilities <br />utilized to deliver water directly to customers. They also include items such as <br />meter reading, billing, collections and dealing with customers by customer service <br />representatives. <br />Revenue revenue related costs include certain non-operating revenues and <br />utility margin. <br />-7- <br />188 <br />