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CHAPTER 1. INTRODUCTION <br />Incremental (Marginal) Cost Method Capacity charges are designed to derive the incremental <br />cost of system expansion. This method is based on the sound economic principal that new <br />applicants for service should be responsible for only those incremental capital improvement costs <br />which they cause to be incurred. Under this method, the capacity charges are designed so that the <br />utility rates would not have to be increased over the planning period to pay for growth- related <br />capital improvements as long as the projected growth occurs. However, this method suffers from <br />the fact that the incremental costs associated with meeting the demand of future customers may <br />vary significantly from planning period to planning period. Because of the variance in both the costs <br />of expansion and the number of new applicants, these charges could vary considerably from <br />planning period to planning period. In addition, the City has no need to significantly expand its <br />wastewater system. <br />Capacity Charge Development Methodology <br />Figure 1 -1 diagrams the capacity charge development process used in this study. The process <br />entails two steps — development of unit costs and application of those unit costs to individual <br />connections. <br />Figure 1 -1. Capacity Charge Development Methodology <br />x <br />= SS CHARGES, $' <br />The development of capacity charges is described in the following chapters. <br />1 -2 <br />FI.Qw, $ /GPD <br />CONNECTION, +BPD <br />UNIT COST OF <br />SOD, FROM <br />130,D, $/LB <br />x CONNECTION, LBSIDp <br />Okft COST OF <br />ERROR <br />SS PROM <br />SS, $ /LB <br />CONNECTION, LBS/Dfi <br />x <br />= SS CHARGES, $' <br />The development of capacity charges is described in the following chapters. <br />1 -2 <br />