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This paper describes the basis and the process for the development of the two-tiered recycled water rate for users in the City of Long Beach, California. The paper describes the history of recycled water use in Long Beach and the unique characteristics of the system and cost structure of the agency. A review of the process of determining the differences between the two user classes, peaking and non-peaking, and the basis for the different rates is presented. The paper concludes with a review of the impacts of the two-tier rate system since its implementation, and a brief summary of the economic impacts to the Long Beach Water Department. Includes table.