scope:

Introduction

In 2000, the American Water Works Association (AWWA) published the fifth edition of AWWA Manual M1, Principles of Water Rates, Fees, and Charges. That manual provides comprehensive and detailed guidance regarding the establishment of rates and charges for water service. The methods and examples contained in Manual M1, while recommended and appropriate for many water utilities, may prove to be overly complex and burdensome for others. This burden applies particularly to the development of cost-of-service rates. Such rates require the determination of revenue requirements by customer class before designing and adopting a rate structure.

Recognizing the limitations Manual M1 may have for smaller systems, or larger systems without sufficient data or rate-making capability, the AWWA Rates and Charges Committee (authors of Manual M1) developed the idea for a "Manual M1-type" alternative. A rate manual for small systems would provide guidelines for the development of rates for utilities that lack the data and resources needed to apply the methods described in Manual M1. For these utilities, this manual- Developing Rates for Small Systems-provides guidance in developing rates when data and information may be lacking. The Rates and Charges Committee encourages all utilities to use Manual M1 as the primary guidance tool but believes this new manual fills a need for small systems.

This manual is intended to serve as a resource for managers (and others) of small water systems in the determination of rates for water service. Recognizing that small systems may be faced'with resource and data limitations, this manual can be used as a guide in the development of financial plans, revenue requirements, rate analyses, and rate design. Other resources, e.g., Manual M1 and state and local government agencies, may also be of value in the preparation of rates for small systems. However, this manual focuses on the unique attributes of small systems as related to financial planning and rate design. Managers and operators of small systems and their advisors (financial, accounting, and engineering professionals) should find this manual useful in preparing water rates that recover costs using generally accepted cost-based practices.

AWWA does not specifically define a small system. Water systems are often characterized based on the population they serve. According to the US Environmental Protection Agency (Safe Drinking Water Information System, accessible at www.epa.gov/OGWDW/databases.html), there are approximately 55,000 community water systems (CWSs) serving 264 million people in the United States. Eighty-five percent of the CWSs are very small to small systems that serve 10% of the population.