--`,,,,`,`,,`,,,,`,,`,,`,`,``,,`-`-`,,`,,`,`,,`--- Copyright American Water Works Association Provided by IHS under license with AWWA Licensee=ATLATEC S A DE C V/5972499002, User=Yañez, Simon No reproduction or networking permitted without license from IHS Not for Resale, 02/13/2009 14:20:47 MST ~ STD*AWWA ML-ENGL 2000 W 0763350 0530223 7TD Principles of Water Rates, --`,,,,`,`,,`,,,,`,,`,,`,`,``,,`-`-`,,`,,`,`,,`--- Fees, and Charges AWWA MANUAL M1 Fifth Edition I American Water Works Association Copyright American Water Works Association Provided by IHS under license with AWWA Licensee=ATLATEC S A DE C V/5972499002, User=Yañez, Simon No reproduction or networking permitted without license from IHS Not for Resale, 02/13/2009 14:20:47 MST --`,,,,`,`,,`,,,,`,,`,,`,`,``,,`-`-`,,`,,`,`,,`--- MANUAL OF WATER SUPPLY PRACTICES-Ml , Fifth Edition Principles of Water Rates, Fees, and Charges Copyright O 1954, 1972, 1983, 1991, 2000 American Water Works Association All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information or retrieval system, except in the form of brief excerpts or quotations for review purposes, without the written permission of the publisher. Library of Congress Cataloging-in-PublicationD ata Principles of water rates, fees, and charges I American Water Works Association. p. cm. -- (Manual of water supply practices ; M1) Includes bibliographical references and index. ISBN 1-58321-069-5 1. Water-supply--Rates. I. American Water Works Association. II. AWWA manual ; M1. TD491.A49 no. Mla [TD3601 628.1 s--dc21 [628.1'068'81 00-036212 Printed in the United States of America American Water Works Association 6666 West Quincy Avenue Denver, CO 80235 ISBN 1-58321-069-5 Printed on recycled paper Copyright American Water Works Association Provided by IHS under license with AWWA Licensee=ATLATEC S A DE C V/5972499002, User=Yañez, Simon No reproduction or networking permitted without license from IHS Not for Resale, 02/13/2009 14:20:47 MST STD-AWWA 13-ENGL 2000 0783350 0530223 573 W Contents List of Figures, ix List of Tables, xi Foreword, xv Acknowledgments, xvii Introduction, xix Section I Revenue Requirements, 1 Chapter 1 General Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 , Adequacy of Revenues, 3 Approaches to Projecting Revenue Requirements, 4 Test Year, 8 Chapter 2 Revenues . . . . . . . . . . . 11 , Sources of Revenue, 11 Unbilled Revenues, 14 Cash Versus Accrual Revenues, 14 Projecting Revenue, 14 Example, 16 Chapter 3 Operation and Maintenance Expenses . . . . . . . . . . . . , . . 19 Classifying O&M Expenses, 20 Identifymg Nonrecurring O&M Expenses, 20 Identifying Capitalized O&M Expenses, 21 Identifying Special Considerations for Government-Owned Utilities, 21 Estimating O&M Expenses, 22 Chapter 4 Taxes . . . . . . . . . 25 Local Taxes, 25 State Taxes, 26 Federal Taxes, 26 Tax Issues in Rate Cases, 28 Chapter 6 Capital-Related Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Cash-Needs Approach, 33 Utility Approach, 35 Rate of Return, 40 Capital Structure, 41 Chapter 6 Examples of Revenue Requirements . . . . . . . . . . . . . . . 43 , Government-Owned Utilities, 43 Investor-Owned Utilities, 44 1.1.1. --`,,,,`,`,,`,,,,`,,`,,`,`,``,,`-`-`,,`,,`,`,,`--- Copyright American Water Works Association Provided by IHS under license with AWWA Licensee=ATLATEC S A DE C V/5972499002, User=Yañez, Simon No reproduction or networking permitted without license from IHS Not for Resale, 02/13/2009 14:20:47 MST STDoAWWA MI-ENGL 2000 0783350 O510224 4OT Section II Cost Allocation, 47 Chapter 7 Allocating Costs of Service to Cost Components . . . . . . . . . 49 Base-Extra Capacity Method, 51 Commodity-Demand Method, 57 Special Considerations, 59 Chapter 8 Distributing Costs to Customer Classes . . . . . . . . . . . . . . 63 Customer Classes, 63 Units of Service, 66 Unit Costs, 69 Distributing Costs to Customer Classes: Base-Extra Capacity Method, 71 Distributing Costs to Customer Classes: Commodity-Demand Method, 74 SCehcatpiotPSRenlura aI mtn9IeInm S SinaterRrguly eact,ch tt8eute3i r nD Reg aVe tsReai rgaSintatebr, ul7Sec7stt r uaurnecd tS uCturodensys ,i d7e9.r a. ti.o .n s. , .8 2. . . . 79 --`,,,,`,`,,`,,,,`,,`,,`,`,``,,`-`-`,,`,,`,`,,`--- Chapter 10 Uniform Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 General Considerations, 85 Historical Perspectives, 86 Advantages and Disadvantages, 87 Example, 88 Summary, 88 Chapter 11 Declining Block Rates . . . . . . . . . . . . . . . . . . . . . . . . . 91 General Considerations, 91 Historical Perspectives, 92 Advantages and Disadvantages, 93 Determining Declining Block Rates, 94 Example, 95 Summary, 97 Chapter 12 Increasing Block Rates . . . . . . . . . . . . . . . . . . . . 99 General Considerations, 99 Historical Perspectives, 100 Advantages and Disadvantages, 100 Examples, 101 Summary, 102 Chapter 13 Seasonal Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 General Considerations, 103 Historical Perspectives, 105 Advantages and Disadvantages, 105 Determining Seasonal Rates, 107 Examples, 109 Summary, 110 iv Copyright American Water Works Association Provided by IHS under license with AWWA Licensee=ATLATEC S A DE C V/5972499002, User=Yañez, Simon No reproduction or networking permitted without license from IHS Not for Resale, 02/13/2009 14:20:47 MST - STD-AWWA M3-ENGL 2000 0783350 0530225 346 Chapter 14 Fixed Versus Variable Charges . . . . . . . . . . 113 General Considerations, 113 Historical Perspectives, 117 Example, 118 Summary, 118 Chapter 15 Marginal Cost Pricing . . . . . . . . . . . . . . . . . . . . . . . . 119 General Considerations, 119 Historical Perspectives, 121 Advantages and Disadvantages, 121 Examples, 121 Summary, 124 Section IV Customer-Specific Charges, 127 Chapter 16 Low-Income Afîordability Rates . . . . . . . . . . . . . . . . . 129 General Considerations, 129 Historical Perspectives, 130 Policy Issues, 131 Advantages and Disadvantages, 132 Example, 132 Summary, 134 Chapter 17 Negotiated Contract Rates . . . . . . . . . . . . . . . . . . . . . 135 General Considerations, 135 Historical Perspectives, 136 Advantages and Disadvantages, 136 Example, 137 Summary, 138 Chapter 18 Economic Development Rates . . . . . . . . . . . . . . . . . . . 139 General Considerations, 139 ChaptAHEGHexrdiiess avnt1tmoaoe9nrrrp iaitcSclaleaa tgC,lla e 1oPPns4n eeda3rsrbn sisdpdpyee e DRrccattiaitisvivtaoeeednsssv,s , a ,11 n144.t426 a5 .g e. s., .1 4.2 . . . . . . 145 --`,,,,`,`,,`,,,,`,,`,,`,`,``,,`-`-`,,`,,`,`,,`--- Advantages and Disadvantages, 146 Example, 147 Summary, 148 Section V Alternative Rates, 149 Chapter 20 Demand-Side Management . . . . . . . . . . . . . . . . . . . . . 151 General Considerations, 151 Historical Perspectives, 152 Advantages and Disadvantages, 152 Example, 153 Summary, 155 V Copyright American Water Works Association Provided by IHS under license with AWWA Licensee=ATLATEC S A DE C V/5972499002, User=Yañez, Simon No reproduction or networking permitted without license from IHS Not for Resale, 02/13/2009 14:20:47 MST Chapter 21 Price Elasticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 General Considerations and Policy Issues, 157 Historical Perspectives, 158 Examples, 159 Summary, 160 Chapter 22 Value-of-ServiceP ricing 161 General Discussion, 161 Historical Perspectives, 162 Advantages and Disadvantages, 162 Examples, 163 Summary, 164 Chapter 23 Drought Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 General Considerations, 165 Historical Perspectives, 168 Advantages and Disadvantages, 168 Example, 168 Summary, 170 Chapter 24 Rate Surcharges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 General Considerations, 171 Historical Perspectives, 173 Advantages and Disadvantages, 173 Determining Rate Surcharges, 174 Summary, 174 Chapter 25 Indexed Rates . . . . . . . . . . . . . . . . . , . , . . , 175 General Considerations, 175 Historical Perspectives, 176 --`,,,,`,`,,`,,,,`,,`,,`,`,``,,`-`-`,,`,,`,`,,`--- CSehcatpiotAESenuxrd Vm av2mIa6m np atClCaregyo,a e,n1p s17n aa77ecn8 cid tty iDo anins aaddn vDda enCvtaueglsoetops,mm 1e7ern6 Ft Cachialirtgye Fs,e 1e7s9 . . . . . . . . . . . . 181 Allocating Costs, 183 Capital Cost Component, 184 Calculating Connection and Customer Facility Fees, 185 Examples, 186 Chapter 27 Policies and Procedures for Water Service Extension . . . 189 General Considerations, 190 Extensions for New Development, 191 Designing and Constructing Water Mains for Redevelopment, 194 Extensions to Serve Developed Areas Served by Individually Owned Wells, 194 vi Copyright American Water Works Association Provided by IHS under license with AWWA Licensee=ATLATEC S A DE C V/5972499002, User=Yañez, Simon No reproduction or networking permitted without license from IHS Not for Resale, 02/13/2009 14:20:47 MST STDeAWWA MI-ENGL 2000 0783350 0530227 IL7 Chapter 28 System Development Charges . . . . . . . . . . . . . . . . . , . 197 Selecting a Method Based on Financial Goals and Objectives, 198 Legal Issues Related to Methodology, 199 Methods of Calculating SDCs, 199 Reimbursement Policies, 206 Economic Development Issues, 207 Administrative and Accounting Procedures, 208 Updates of the SDC Analysis, 209 Chapter 29 Dedicated-Capacity Charges . . . . . . . . . . . . . . . . . . . . 211 Availability Charge, 211 Contract Demand Charge, 213 Section VI1 Fire Protection Charges, 215 Chapter 30 Rates for Fire Protection Service . . . . . . . . . 217 Historical Perspective, 218 Public Versus Private Fire Protection, 218 Regulated Versus Nonregulated Utilities, 220 Determining Fire Protection Costs, 220 Direct Public Fire Protection Charges, 227 Private Fire Service Charges, 228 Emerging Issues, 229 Section MI1 Wholesale Rates, 231 Chapter 31 Wholesale Rates . . . . . . . . . . . . . . . . . . . . , , . . . . . . 233 Water Service, 233 Determining Cost of Service, 233 Types of Service, 235 Rate Design, 236 Example, 239 Section M Miscellaneous and Special Charges, 243 Chapter 32 Miscellaneous and Special Charges . . . 245 Definition of Charges for Services, 246 Example, 247 Legal Authority for Service Charges, 247 Selecting and Implementing Charges, 248 Cost Basis and Rationale for Miscellaneous and Special Service Charges, 250 Determining the Cost of Providing Service, 250 Sample Service Charge Calculation, 254 Examples, 254 Field Service Charges, 255 Office Service Charges, 258 Service Application, Engineering, and Inspection Fees, 260 Contract Work and Merchandise Sales, 261 Wheeling Charges, 264 Summary, 265 vii --`,,,,`,`,,`,,,,`,,`,,`,`,``,,`-`-`,,`,,`,`,,`--- Copyright American Water Works Association Provided by IHS under license with AWWA Licensee=ATLATEC S A DE C V/5972499002, User=Yañez, Simon No reproduction or networking permitted without license from IHS Not for Resale, 02/13/2009 14:20:47 MST Section X Implementation Issues, 267 Chapter 33 Public Involvement Definition . . . . . . . . . . . . . . . . . . 269 General Considerations and Policy Issues, 269 Historical Perspectives, 270 Public Involvement Planning, 271 Communications Tools, 275 Evaluating Communication, 277 Summary, 277 --`,,,,`,`,,`,,,,`,,`,,`,`,``,,`-`-`,,`,,`,`,,`--- ChaptJRSFGeuaueerrccmn i3teUseo4mdnrrn tiasa crLlC ert tLyeiaooog,se u Cno2agr 8nolato 5anlfCD bsSEeioltdcycanoei nsDsnrid iooiidansmncre sDdrir,ci sa2em R,t8t 2eiie2nor8g man0ut osilna rtyii.n ,o g.n2 8i.of 1 f.R W.a t.ae ts.e A.r Ur. et. i l.i t.i e.s ,. 2.7 .9 279 Chapter 35 Data Requirements . . . . . . . . . . . . . . . . . . . . . . 287 Customer Records, 287 Plant Investment, 291 Operation and Maintenance Expenses, 291 Revenue Stability and Sufficiency, 292 Customer Survey Information, 292 Summary, 293 Appendixes, 295 Appendix A Development of Capacity Factors by Customer Class . . . 297 Appendix B Equivalent Meter Ratios . . . . . . . . . . . . . . . . . . . . . . 305 Appendix C Bill Tabulation Methodology . . . . . . . . . . . . . . . . . . . 309 Appendix D Example of Citizens Advisory Committee Guidelines . . . 319 Glossary, 321 Index, 329 List of AWWA Manuals, 341 viii Copyright American Water Works Association Provided by IHS under license with AWWA Licensee=ATLATEC S A DE C V/5972499002, User=Yañez, Simon No reproduction or networking permitted without license from IHS Not for Resale, 02/13/2009 14:20:47 MST - ~ STDmAWWA ML-ENGL 2000 0783350 0530229 T7L Figures 14-1 Uniform consumption charge, 116 14-2 Declining block consumption charge, 116 14-3 Inclining block consumption charge, 117 14-4 Seasonal consumption charge, 117 26-1 Typical water system components, 182 30-1 Percentage of total revenue allocated as fire protection service cost, 219 33-1 Ten-step approach to public involvement, 271 C-1 Hypothetical customer-account billing records, 3 10 c-2 Example of a water-bill tabulation sheet, 311 c-3 Development of cumulative billed usage residential class-annual number of bills and usage5/8-in. meters, 313 c-4 Metered water-use condition (example), 316 --`,,,,`,`,,`,,,,`,,`,,`,`,``,,`-`-`,,`,,`,`,,`--- ix Copyright American Water Works Association Provided by IHS under license with AWWA Licensee=ATLATEC S A DE C V/5972499002, User=Yañez, Simon No reproduction or networking permitted without license from IHS Not for Resale, 02/13/2009 14:20:47 MST