SYSTEM-DEVELOPMENT-CHARGE-BASED SURCHARGES – SIGNALING CUSTOMERS TO USE SERVICE WITHIN PURCHASED CAPACITIES

Municipal water and sewer utilities facing growth situations frequently employ system development charges (SDCs) to recover a proportional share of capacity-related capital costs before service is rendered to new customers. Utilities intend for their SDCs employment to make “growth pay for growth” thereby minimizing growth's financial impacts on existing customers. General schedules of rates and charges are usually designed for customers' normal rainfall year usage and do not reflect existing customers' unrestricted capacity utilization during drought years. When rates and charges are set without recognizing the capacities that customers have reserved by payment of their SDCs, utilities may face periodic drought operational and fairness-in-cost-recovery issues as existing customers use system capacity reserved for growth. Use of a SDC-based surcharges applied to all water usage above a normal rainfall year's estimated peak usage block by class of customer, or ratchet charges applied to use above individual customers' reserved capacities, provides (1) a price incentive to existing customers to curtail excess usage and (2) a means of generating additional SDC revenue from existing customers who will not comply with the utility's conservation measures. This paper outlines the process for integrating design logic for system facilities, SDCs, and schedules of general service rates and charges that employ SDC-based surcharges or ratchet charges.