Utility managers should understand that you only get one chance to charge new customers connecting to your system for the capital costs of providing them the capacity they need for service. Connection charges (aka. system development fees, impact fees, tap fees, capacity charges, etc.) are the right way to ensure intergenerational equity between existing customers and new ones. If designed and applied correctly, these fees can help keep rates lower in the long run while the utility continues to expand its system for a growing customer base. However, once the customers are already connected, your opportunities are reduced like they were for this small utility in Indiana. To avoid a big rate increase like the one in the Indiana example, this utility could have been charging all their new customers a cost-based connection charge all along. Instead, they get to explain to their users why system growth (double the planned capacity) is going to cost them a 23% rate increase.
StepWise Knowledge Center
Connection Fees Anyone?
September 22, 2009
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