Basic Information on Availability Charges
Excerpt From: Financing Issues and
Strategies for Water Utilities
Patrick C. Mann, Professor of Economics at College of Business and Economics
West Virginia University
Morgantown, West Virginia, Phone: 304-293-7872. E-mail:
March 6, 2001
FINANCING CAPITAL IMPROVEMENTS
Dedicated-capacity charges involve a financing method for
water utilities having the purpose of recovering costs from customers for
capacity constructed primarily for providing service to these specific
customers. The availability or readiness-to-serve charge is one type of
a dedicated-capacity charge.
The availability charge is a charge designed to recover the
costs incurred by a water utility in constructing facilities primarily for the
benefit of new or future customers. The availability charge is imposed
between the time that service is made available to the future customer and the
time that actual water service is initiated. The availability charge may
be based on lot frontage or similar bases. When water service is
actually initiated, the availability charge is terminated.
The availability charge is particularly appropriate in cases
where a new housing development is created and the water utility constructs
facilities for that development. The initial system costs may exceed the
level that can be realistically recovered from the low initial customer base.
Thus, it is appropriate that lot owners be charged for having service
available, even though at that time they are not actually receiving service.
The availability charge is essentially an access charge
reflecting the cost of providing consumer access to the water system.
The justification for the availability charge is that the water utility incurs
certain costs regardless of whether or not consumers receive service.
An advantage of the availability charge is that it promotes
cost sharing between existing customers and unconnected property owners who
eventually derive benefits from the facilities of the water utility. It
adheres to the standard of cost-causation where the water utility has incurred
significant capital investment to provide service to both existing and future
A problem associated with availability charges is that of
remedies for nonpayment. Since the customer that is being assessed the
charge is not connected to the system, termination of service is not an
appropriate response to nonpayment.