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<br />- 7 - <br /> <br /> Section 3 <br />Cost-of-Service <br /> <br />A cost-of-service analysis was performed to determine the allocated cost to serve <br />ERMU’s customer classes within the water utility. Customer classes exist, in part, <br />because the cost to serve different kinds of customers varies. The cost-of-service <br />analysis has been performed on a 2024 Test Year’ based on actual 2024 <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 />ERMU’s Test Year water revenue requirements have been divided into four <br />functional categories. These categories are described below. <br />Plant – costs associated with ERMU’s source of supply and pumping. <br />Distribution – distribution expenses are related to the ERMU system for delivering <br />water to ERMU customers 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.