ABSTRACT
As will be discussed in Chapter 8, a utility must provide and fund different types of water and wastewater capital items. These capital items include major backbone facilities, water and wastewater extensions, and water and wastewater service installations as depicted in Exhibits 5.1 and 5.2. Major backbone facilities represent the greatest capital expenditures for governmental utilities since these facilities are constructed to provide large increments of capacity that are shared by numerous utility customers. In addition to other charges discussed later in this chapter, a popular mechanism used by utilities to fund capital expenditures is system development charges (SDCs), which are designed to recover the unit cost of providing capacity to serve new customers. Unfortunately, these large increments of capacity must be constructed in advance of new customer connections and must be typically financed through debt issues. On the other hand, water and wastewater extensions and service installations represent capital expenditures on items that are constructed to serve a specific customer or a smaller group of customers. The capital expenditures for these extensions and service installations can be typically funded at the time of construction through direct capital recovery charges known as connection fees, tap fees, and frontage fees. This chapter focuses on issues primarily related to determining and assessing SDCs and concludes with a brief discussion of other capital cost recovery charges.
