M1 Principles of Water Rates, Fees and Charges, Eighth Edition
Establishing cost-based rates, fees, and charges is important in a well-managed and well-operated water utility. When implemented correctly, cost-based rates help to ensure sufficient funding to allow communities to build, operate, maintain, and reinvest in the water system, providing the community with safe, economically sound, and reliable water for drinking and fire protection. Properly and adequately funded water systems also allow for the economic development and sustainability of the local community. The purpose of this manual is to discuss standard practices in financial planning and rate-setting that a utility can use to establish cost-based rates, fees, and charges to recover the full costs associated with its water system.
Description
The methods and analyses used to establish cost-based rates, fees, and charges have a long and proven history within the water utility industry. Owners and operators of the earliest water systems recognized the need for sufficient funding and rates to operate, maintain, and expand their facilities. As time passed, the water utility industry recognized the need for a manual of standard practice. AWWA created the Committee on Water Rates in 1949, resulting in the first such manual, the Water Rates Manual, in 1954 (Woodcock 2013). Although it has been updated many times since, some of the same concepts, methodologies, and analyses published in the first Water Rates Manual remain mainstays in the current text, now called AWWA Manual M1, Principles of Water Rates, Fees, and Charges. The development of this eighth edition of M1 reflects the continuing efforts of the AWWA Rates and Charges Committee to keep the water industry up to date in current financial and rate-setting practices.
AWWA policies advocate for cost-based principles and methodologies for establishing rates, charges, and fees. Establishing cost-based rates is technically challenging. It requires a working knowledge and understanding of finance, accounting, budgeting, economic pricing theories, engineering, system design, operations, customer service, public outreach and communication, and the relevant legal environment. The concepts and techniques described in this manual can greatly assist water utilities when faced with implementing and approving their rates and charges.