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Customer costs are those associated with serving customers regardless of the amount of water used, i.e., meter reading, accounting, billing, etc. The allocation of cost between base and extra capacity components depends upon the design and use of the particular portion of the water system being analyzed. If an asset of the water system is designed to meet only the average demand on the system - a raw water supply reservoir for instance - the capital costs and operation and maintenance costs for that asseta.re totally allocated to the base component. If the asset is designed to provide additional c~pa.city whiph is needed to provide peak demand on the system, the capital and operating costs assoCiated withthe asset are allocated to base and extra capacity components in the samepl'oportion that the capacity Qfthe asset is used for average and peak use. The appropriate allocation factors between base J:lIld extra capacity usually vary from system to system. TherefQh~,tl:1ey shoulci be determined from actual operating history or design criteria of the system. The other important consideration foriisetti;ng equitable rates for utility servIce IS the establishment of customer classes for cost distribution. after costs are allocated to servIce functions. A customer class should include orily tl:1()se custolll~rs who; (a) are in similar location in relation to the utility, (b) use the same or sitriilar facilities of the utility, (c) receive similar service from the utilit)',arid (d) plase similar deIIl~dsof the utility. It is important to note that makeup of the custOl11~r class cari.Pl:1l:Wge depending upon the particular asset that is being allocated. A customer class that is appropriate for allocation of one type of cost, e.g., water treatment cQsts,IIlayjnclude customers that would not be appropriate to the class when another type of<:ost of assetsisa1located,>~.g., treated water distribution costs. The objective of cost allocation and ultimate distribution to customer groups is to avoid cross-subsidization, and it is important with that obj~ctive in view, differences in service commitment and service requirement be given f\.lllconsideration in determining customer classes. City of Paris, Texas Water and Wastewater Cost of Service Study June 2007 6