July 2018

Speaking of usage allowances: 


Divide the 60,000,000 billable gallons from Table 3,

by the 1,000 connections in Table 2, and then divide again

by 12 (months) and you get an average use per month of

5,000 gallons. That amount of monthly use is considered as

being near the national household average usage. 


If Ratewell had a usage allowance

of 10,000 gallons per month, very few

of the 60,000,000 gallons would be

billable. To balance the budget that

means, charge the few billable gallons

at a very high unit charge, which just

would not fly. Or, recover some of the

variable costs with the minimum

charge. That is not fair, but it’s

commonly done. On the upside, an

inflated minimum charge is almost a

guaranteed revenue stream, making

utility budgeting more dependable. But,

then, no usage allowance and an

appropriate reserve level does that just as

well and it does it fairly.

None of the previous calculations

include capacity cost recovery. There are

reasons utilities go down that path:  


It simplifies the rates math

drastically, for a while, and


If the utility is burdened enough, it

just might qualify for big grants and

federal or state-subsidized loans –

(commonly considered, “using other

people's money”. 

Using other people’s money is a good

gig, if you can get it. But, as Margaret

Thatcher once said, “The problem with

socialism is that you eventually run out

of other people's money.” Yes, yes, I

know, the state and the feds mandated

you to build a lot of this “stuff” and if

they don’t pay for it, it’s an unfunded

mandate. Well, sometimes unfunded

mandates happen! 

My advice: choose a course, then set

rates appropriately. Use other people’s

money if the rules say you can and doing so will not put the

utility at financial risk. And, don’t cry too hard when the

money goes away.

Back to the issue of system development cost recovery.

Ratewell could allocate these costs in different ways. Some

are risky, many are unfair and only a few are fair and low-

risk. What method is low risk and fair? Assess system

development fees and capacity surcharges to the minimum

charge, both based on American Water Works Association

studies of the sustainable peak flow capacity of different

meter sizes. Such rates are beyond Ratewell to calculate.

But, you might want them, so consider this.

If Ratewell recovered all capacity costs with surcharges

only, as shown in a simplified way in Table 4, the minimum

charge for a 3/4-inch meter would increase by $2.60. That’s

not much of a hike to ensure sustainability – and it would do

it fairly. If Ratewell recovered any of these costs with

system development fees, the surcharge could be lower.

That would be fairer, but it is a

complicated calculation. Meter size-

based system development fee

calculations are based on the same

principles, so those fees would graduate

with meter size, too. 

Like Ratewell, you have rate

calculation and outcome options: 

1.  You can seek adequate and fairly

structured rates, in which case

a. Probably, a hired specialist would

do the hard math, initially, and 

But, as Margaret

Thatcher once said,

“The problem with

socialism is that you

eventually run out of

other people's money.”