Civil Engineering Reference
In-Depth Information
other functions (such as general services), this is usually not rationalized as a profit
but as a payment for general services (management, police, fire, etc.) rendered to the
utility.
Most privately owned utilities come under some level of state regulation, given
their provision of a basic public service and conferred monopoly status for a defined
service area. Typically, one of the regulated aspects of these private utilities is rate
setting, using the
utility basis
method. With this approach, most reasonable expenses
are allowed on a known or anticipated basis, interest expenses are specifically allowed,
capital recovery is provided for through a depreciation expense, and reasonable rate
of return or profit is allowed based on the amount of invested equity that the owner
has in the utility. Usually these for-profit utilities cannot fund specific debt service
(principal and interest) payment amounts, but must instead recover capital-related ex-
penses indirectly through allowed depreciation and interest expenses.
Once the rate base of allowed costs has been defined, there is an array of alternative
water rate (flat, declining block, seasonal, etc.) or wastewater rate (flat, block charges
based on metered water, average winter month, etc.) designs that may seek to achieve
various cost-recovery and policy goals.
2
However, the AWWA does not endorse any
substantial departure from cost-of-service-based rates to achieve social objectives.
1
Utility Rate Surcharges
Utility rate surcharges can take a variety of names and forms, although the generally
common feature of these additional monthly billing charges is that certain types of
customers are being narrowly targeted for special cost recovery due to unusual utility
service provision or rate stabilization.
2
Additional charges for enhanced fire protection
and special recovery of bonded water distribution and wastewater collection line capital
costs from residents of districts that have been annexed by municipalities (normally
borne by developers in typical city subdivisions) are two examples of unusual service
costs that can be addressed through surcharges. Another form may entail a line item
surcharge for all utility customers to specifically identify the collection of funds for a
particular purpose, such as water supply acquisition.
Impact Fees
With continuing growth pressures and evolving attitudes, this type of capital charge
gained widespread use by municipalities during the early 1980s to make ''growth pay
for itself.'' This particular funding tool goes by many names: impact fees, capital
recovery fees, facility charges, plant investment fees, system development charges, and
so on. The AWWA characterizes this type of charge as a program of contributions of
capital by a developer or new customers connecting to a water system.
3
However, care
should be taken to distinguish the water-related impact fee's typical one-time, up-front
payment at time of connection or occupancy from that of developer exactions or other
more minor connection or tap fees. This particular fee has been the subject of much
debate, and several state legislatures have defined specific policy, methods, and pro-
cesses for how these fees can be designed and adopted.
Availability of Service Fees
AWWA describes an availability charge (standby fee) as a levy designed to recover
capital-related cost and other ongoing costs incurred by a utility when it is constructing
