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Computational Alternatives

Act 57 offers authorities new computational alternatives to keep certain fees more current without the need for a detailed study or recalculation of the entire fee.

Connection Fees
Under prior legislation, authorities had to base connection fees on the actual cost to connect the new customer or an average of actual costs incurred from similar installations. The actual cost for a particular connection could be calculated in current dollars because the costs were incurred at the time of connection, but detailed records of the cost for every connection were required in order to support the fee. Unfortunately, the average actual cost approach, which establishes a fee based on historical costs for similar connections, was equally troublesome. If these costs were incurred several years, today's cost could be much greater.

Thanks to Act 57, authorities can now escalate their historical costs to today's values without having to recalculate the entire fee. As a result, authorities can adjust their connection fee on an annual basis based upon changes in the overall cost of construction.

Tapping Fees
Act 57 takes a similar approach to increasing initial tapping fees that were imposed for connection to facilities exclusively serving new users. Act 203 offered an exemption from the requirement to subtract outstanding debt when computing these initial fees; however, it was unclear how debt was to be treated for any subsequent recalculation. Language in the new act clarifies this ambiguity, but also allows an authority that has calculated fees on this basis to increase them using the average interest rate on the debt that financed the facilities since the last recalculation.

Essentially, this allows an authority to recover the interest cost that has been incurred until such time as a new customer requests connection to the system. This is a more streamlined approach that allows for annual increases without having to recalculate the entire fee.

Act 57 also allows authorities to substantially recover the cost of extensions they finance and construct to their distribution and collections systems. Under Act 203, authorities were allowed to include the actual cost of extensions in their basis for computing the distribution/collection part of their tapping fee. However, unless these facilities exclusively served new users, debt related to the extension needed to be subtracted. At the very least, the cost of the extension needed to be divided by the design capacity of the entire system, resulting in a small increase in the cost per unit of design capacity upon which the tapping fee was based. This approach burdened all connections to the system-not just those connecting to the extension-with a portion of the cost of the extension.

Under Act 57, the cost of the extension can be divided among the estimated number of connections to be served by the extension. In addition, the initial amount may be increased on an annual basis to reflect the interest cost until such time as a new customer requests connection to the extension. This amount may be added to the authority's distribution/collection part of the tapping fee that they would normally collect. However, the additional amount to be added can only be collected until the estimated number of connections has been made. Therefore, an accurate estimate of the number of new connections that can be accommodated by the extension is very important. If the initial estimate is too high, the authority may not collect all of the cost of the extension since insufficient fees will have been collected. If the initial estimate is too low, the authority is prohibited from collecting the additional fee from the last users to connect since they have already collected the full amount of the cost of the extension.

One of the most discussed computational alternatives is the method by which an authority establishes the number of units of design capacity required by a new residential connection. This has plagued both authorities and developers since Act 203 became law in 1990 and has been the subject of several legal challenges. Act 57 now establishes numeric values as well as study options. A sewer authority wishing to use the numeric value method may use up to 90 gallons per day per capita, while a water authority using this method may use up to 65 gallons per day per capita. The per capita values are then applied to local census data in order to determine the maximum number of units of design capacity a new residential connection will require.

However, some authorities may benefit from one of the study options offered under this act. Water authorities may establish the units of design capacity required by conducting a year-long study of residential water usage per customer. Sewer authorities, on the other hand, can conduct a year-long study of water usage and add 10% or conduct a specific study of wastewater flows to determine design capacity requirements. If the sewer authority elects to conduct a study of wastewater flows, it must do so in at least three subdivisions of at least 10 homes to determine the average annual sewage flow per household.

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