Texas utilities face an increasing challenge to collect sufficient revenue to operate, maintain, and grow their water and wastewater utility systems. Many utilities do not have the legal authority to collect taxes for capital improvement debt financing and rely on rates and other fees and charges to finance operating costs and programs.
Besides day-to-day operation expenses, utilities also must finance the cost to repair and replace existing infrastructure, build improvements to increase capacity, and comply with regulatory requirements for improvements. All of this adds up, making customer rates and tariffs a key piece of business success.
Rates and Tariffs: A Little Background
Rates are generally developed to match customer consumption (i.e., $/1000 gallons), and rise from less expensive to higher cost to reflect cost of service and to encourage conservation.
Tariffs are developed to cover the cost of operating the utility system, establishing service, billing application, service connections and fees, shut-off procedures, meter sizing, winter averaging for wastewater, drought management, and water conservation planning.
These revenue mechanisms generally take into account the following:
- Cost of service (water production/wastewater treatment, operations, laboratory, clerical, billing and management)
- Professional fees (legal, engineering and financial consulting)
- Equipment inventory
- Short-termed assets
- Vehicles and maintenance fleet
- SCADA (Supervision Control and Data Acquisition) remote monitoring and control
New Ways to Supplement Rates and Tariffs
In recent years, other types of one-time fees have been developed to supplement rates and tariffs. Specifically, these new fees include the capital recovery fee (CRF), also known as an impact fee, and the water acquisition fee (WAF).
About the Capital Recovery Fee (or Impact Fee)
The CRF, or impact fee, is a one-time fee typically paid at the time of initial connection to the system. The fee is used to recover the capital cost associated with the development and construction of the central infrastructure to provide utility services. This may include treatment plants, pipelines, booster or lift stations, storage facilities, and effluent disposal options.
In Texas, this is regulated by Texas Local Government Code (TLGC) Chapter 395. The fee calculation and cost components are regulated by the Texas Commission on Environmental Quality (TCEQ) or local administrative boards to provide public scrutiny of the associated cost. Impact fees are typically sized to the type of service classification provided and are tied to the land where service is provided. In the case of multiple services or large accounts, a multiple of the fee may be required based on “equivalent single-family connection” (ESFC). ESFC multipliers are typically based on water meter sizing equivalence.
About the Water Acquisition Fee
Different than an impact fee, a WAF does not include construction costs. WAF is calculated as a fee that allows the purchase of surface water rights or groundwater leases. Also, it can be used for wholesale water/wastewater capacity buy-in. The funding criteria are described in Texas Water Code (TWC) Chapter 13 and Texas Administrative Code (TAC) Chapter 291.
The WAF is developed based on a customer ESFC metric for water meters/wastewater connections and is typically collected at the time new service is initiated, whether that be plat commitment or meter service. However, some utilities are charging a monthly WAF based on the customer’s water use bill. The fee allows utilities to fund capacity buy-in of water/wastewater wholesale systems. These buy-ins generally occur in larger blocks to fund future capacity needs.
Interested in Learning More?
It can be overwhelming to navigate how to develop fees or secure loans or grants to fund your increasing operating costs, while also dealing with capital expansion needs. Join us for a workshop about how to select and implement the right funding mechanisms for your system to maintain quality service. We will be hosting informative workshops on:
- Tuesday, March 19th - Austin
- Wednesday, March 20th - New Braunfels
For more information, click here. RSVP FOR A WORKSHOP
Jason Vreeland, P.E.