United States Office Of Water EPA 832-R-93-010
Environmental Protection (4204] September 1993
Agency
«>EPA Evaluating Municipal Wastewater
User Charge Systems
LI
What
You Need
To Know
Ital
11
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ABSTRACT
This guide is intended to provide the information you need to comply with EPA's construction grant user charge system regulations.
ACKNOWLEDGMENT
This booklet was prepared by Haig Farmer of the U.S. Environmental Protection Agency and Sharon Rollins and Sharon Fitzger-
ald of The University of Tennessee's Municipal Technical Advisory Service.
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SHARPEN YOUR PENCILS!
You're reviewing a municipally owned wastewater operation. It's your job to determine if
the operation's user charge system complies with applicable federal requirements.
This guide gives you the:
1. questions to ask while performing the review;
2. answers that are in accordance with the Code of Federal Regulations (CFR);
3. brief explanations, definitions of terms, worksheets, and tips on how to determine
compliance;
4. a summary checklist; and
5. the CFR references.
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Question 1
Yes
No
DO YOU NEED TO FOLLOW THIS GUIDE?
Maybe! Any wastewater facility that received U.S. Environmental Protection Agency
(EPA) grant assistance for construction was required to have EPA's approval of the user
charge system and sewer use ordinance.
If the utility received a grant from the EPA for wastewater facilities construction, answer
Yes here and continue with the following questions.
If the utility didn't receive an EPA grant for wastewater facility construction, you can
answer No and stop here. But, you may choose to use this guidance since it's based on
sound financial principles and tips you'll find helpful in your review.
Reference - 40 CFR § 35.2122 and § 35.2208.
WHAT'S A USER CHARGE SYSTEM, ANYWAY?
A user charge system is how revenues are generated to cover the cost of operating a
wastewater collection and treatment facility. The system is usually spelled out in a sewer
use ordinance, which has been legally enacted by the governing body.
What types of user charge systems are acceptable for EPA grant-assisted
wastewater facilities?
Either a user charge based on actual use or one based on ad valorem taxes is acceptable.
User charge systems based on actual use (or estimated use if there aren't water meters)
are predicated on the notion that each customer receiving service pays for that service.
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An ad valorem taxes user charge system gets the revenues for operating and maintaining
the wastewater plant from property value assessments. Ad valorem taxes are seldom used
to cover wastewater operating costs. But, they are allowed if they pass the following test:
the grantee had in effect on December 27, 1977, a revenue system that dedicated
ad valorem taxes to pay for wastewater operation and maintenance costs;
the grantee has continued to use that system;
the ad valorem user charge system distributes costs in proportion to use for resi-
dential, commercial, and small (less than 25,000 gallons/day) industrial users; and
large commercial and industrial users (more than 25,000 gallons/day) pay based on
actual use.
Is the utility's user charge system based on actual use or on ad valorem
taxes?
Answer Ad Valorem Taxes only if all the conditions listed above have been met.
Reference - 40 CFR § 35.2140{a) and (b) and § 35.929-1(b); User Charge Guidance Manual for Publicly-
Owned Treatment Works. EPA publication, 430-9-84-006.
Question 2
Use
Taxes
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WHY ARE FINANCIAL AND
OPERATIONAL MANAGEMENT IMPORTANT?
Well-managed wastewater utilities are characterized by sound finances and good opera-
tions. Financial management includes control of all items that affect a utility's financial
health. You'll need to look at revenues and expenses in detail to determine if there are
enough revenues to cover operating costs. Also, evaluate the utility's operational manage-
ment capabilities. Review items such as budgeting, purchasing procedures, staff training
schedules, and regulatory compliance.
DO REVENUES COVER EXPENSES?
Take a close look at revenues and expenses. Wastewater utilities are a public service.
They aren't in the business of making a profit, but they should be self-supporting. In
other words, revenues and expenses should balance.
Revenues are all monies received for wastewater operations. They are:
• user service charges - the fees charged users for the collection and treatment of
wastewater. They account for almost all of a system's total revenue.
• hookup/impact fees - charges for new customers connecting to existing sewer lines.
• taxes/assessments - special front footage or other annual charges.
• interest earnings - interest earned from investments like checking accounts, savings
accounts, and treasury bills.
• other revenues, including sales of treatment byproducts such as composted sludge,
and penalties charged for not paying the sewer bill on time.
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Expenses are costs of operating, maintaining, replacing equipment, and paying debt service
for a wastewater plant. It's very important to budget for equipment replacement. The CFR
defines equipment replacement costs as "the costs of obtaining and installing equipment,
accessories, or appurtenances during the useful life of the treatment works necessary to
maintain the capacity and performance for which the facility was designed and con-
structed." Operating expenses don't include the purchase costs of new capital facilities like
more treatment capacity or sewer lines. Operating expenses also exclude depreciation —
the estimate of how much value the utility's plant and equipment lose in a given time.
Expenses include:
• salaries and benefits - the largest expense of most wastewater operations.
« utilities - the cost for electric, telephone, water, and gas service.
•> chemicals.
• supplies and parts - lab supplies, gaskets, belts, lubricants, and so forth.
• contract services and professional services.
• administrative - the cost of providing facilities for conducting business: liability
insurance, postage, and so forth.
* principal and interest - payments to retire debt and reserves for debt coverage ratios.
What are the total annual budgeted revenues for the wastewater operation?
TOTAL BUDGETED REVENUES
User service charges
Hookup/impact fees
Taxes/assessments
Interest earnings
Other
To tat Bvitfg6t&ti Revenues
$
$
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What are the total annual budgeted expenses for the wastewater operation?
Are expenses for equipment replacement budgeted?
TOTAL BUDGETED OPERATING EXPENSES
Salaries and benefits
Utilities
Equipment replacement fund
Chemicals
Supplies and parts
Contract services
Administration
Principal and Interest payments
Other
Total Budge ted Opera ting Expenses
$
f
What are actual revenues to date? How do they compare with budgeted
revenues to date?
BUDGETED REVENUES VS. ACTUAL
. . •' .- . • -' . .'. -'-. ';'••••- '.
Total Revenues
$ Budgeted
$ Actual
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What are actual expenses to date? How do they compare with budgeted
expenses to date?
BUDGETED EXPENSES VS. ACTUAL
Total Operating Expenses
$ Budgeted
$ Actual
Does the wastewater utility show a cash flow problem?
ACTUAL REVENUES AND EXPENSES
Do revenues cover expenses of operation?
Total Revenues
Total Operating Expenses
Cash A vadable
$
(-)
$
Answer Yes to question 3 only if the utility shows a positive cash flow and the equipment
replacement fund has adequate reserves to cover long- and short-term equipment needs.
Reference • 40 CFR § 35.2140 and A Water and Wastewater Manager's Guide for Staying Financially
Healthy, EPA publication 430-09-89-004.
Question 3
Yes
No
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Question 4
Yes
No
Question 5
Yes
No
IS OPERATIONAL MANAGEMENT ADEQUATE?
Operational management affects a utility's financial health and its ability to provide
adequate wastewater treatment services. To evaluate the utility's operational management
capabilities, look at the entire utility operation — budgeting, financial reporting, operating
and coverage ratios, purchasing, organizational structure, plant operations, and regulatory
compliance.
Before the beginning of the budget year, the utility should prepare revenue and expense
budgets. The wastewater budgets should be separate from other governmental utility bud-
gets like water, garbage disposal, etc.
Does the utility prepare an annual budget of wastewater revenues and
expenses?
Periodic comparisons of budget vs. actual revenues and expenses are recommended. They
are concrete evidence that the utility is either operating according to the budget plan or
that adjustments to expenses or revenues are needed.
Does the utility prepare actual vs. budgeted comparisons for revenues and
expenses?
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Does the wastewater budget show revenues and expenses by line item?
The utility's operating ratio — the total revenues divided by total operating expenses —
must be at least 1.0. It's important to examine the coverage ratio, too. The coverage ratio
is:
(Revenues) - (Non-debt Operating Expenses)
(Annual Debt Service Expense)
The coverage ratio indicates whether the utility has enough revenue to pay its debt ser-
vice on loans and still cover contingencies. A coverage ratio of 1.25 is common.
Does the utility maintain adequate operating and coverage ratios?
Does the utility receive monthly accounting reports for revenues and
expenses?
Question 6
Yes
No
Question 7
Yes
No
Question 8
Yes
No
JJ
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ET
Question 9
Yes
No
Question 10
Yes
No
Does the utility maintain all records for at least four years?
Does the utility have written operating policies and procedures?
A sewer use ordinance?
A pretreatment ordinance and enforcement response plan?
A policy for collecting delinquent wastewater bills?
Job descriptions, personnel policies, and performance review standards?
Purchasing procedures?
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What type of organizational structure does the utility have?
__ A municipal authority,
a regional authority, or
a municipal department.
Does the organizational structure of the utility operate efficiently?
Notes:
Is the staff highly motivated and well trained?
Some clues to help you with this question are:
__ Is compensation adequate?
Are operators certified?
Is staff training provided periodically?
__ What is the personnel turnover rate?
Is absenteeism a problem?
Question 11
Yes
No
Question 12
Yes
No
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Question 13
Yes
No
Question 14
Yes
No
Does the wastewater treatment facility appear to be well operated?
Tour the wastewater treatment facility. A visual inspection will help you decide if opera-
tional management is adequate. Look for these clues:
Are grounds well maintained?
Are facilities clean and organized?
Is the laboratory neat?
Is all process equipment in working order?
Are operational and compliance records maintained?
Is equipment routinely maintained?
Is the utility in compliance with its discharge permit? List any violations and
their status:
List Violation:
Status:
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Is operational management adequate?
Answer Yes to question 15 only if you're able to answer Yes to most of the questions in
this section (questions 4-14).
Reference - 40 CFR § 35.2140{d) and Managing Your Utility's Money, EPA publication 430/09-91-014. A
Water and Wastswater Manager's Guide for Staying Financially Healthy, EPA publication 430-09-89-004,
WHY ARE PROPORTIONAL CHARGES IMPORTANT?
Next, look at the user charge rate structure. Does each user (or user class) pay its fair
share of operation, maintenance, and replacement (OM&R)? Users who understand the
value of wastewater service — and who feel they're being treated fairly in comparison to
other users are willing to pay for the service. Only user charge systems that charge in
proportion to use comply with the regulations. Proportionate use of the sewer system
includes consideration of discharge quality as well as discharge quantity.
To determine if the user charge rate passes the "fair share" test, examine the wastewater
rate structure and answer questions 16 through 22.
Does each user receive a bill for services?
All users should be identified and billed for wastewater services. Systems that allow some
users to receive free service aren't treating paying customers fairly,
Question 15
Yes
No
Question 16
Yes
No
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Question 17
Yes
No
Question 18
Yes
No
14
Does the rate structure identify user classes?
Generally, utilities have four user classes: residential, commercial, industrial, and institu-
tional. Which user classes are specified?
Residential
Commercial
Industrial
Institutional
Are iower rates allowed for low-income residential users?
The utility may (but isn't required to) establish lower user charge rates for low-income
residential users if the utility:
1. gave a public notice of the proposed lower rates;
2. conducted a public hearing on this matter;
3. structured the lower user rates (for low-income customers) as a uniform percentage of
the user rate charged other residential users; and
4. allowed the costs (of having lower user charge rates) to be absorbed proportionally by
all other user classes.
Does the rate structure provide for lower rates for low-Income residential
users?
Answer Yes to question 18 only if the utility meets all four conditions listed above.
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Does the utility charge a minimum bill?
The minimum charge covers the cost of preparing, mailing, and collecting bills. A mini-
mum charge that is set too high creates a non-proportional rate for the users.
What is the minimum bill?
$
What is the average annual wastewater service charge for a residential cus-
tomer?
What Is the basis of the user charge?
User charges are generally based on;
water meter readings,
_ equivalent dwelling units, or
other (specify)
Wastewater user charges are normally based on the customer's water meter reading. Water
meter readings may be adjusted to account for water not discharged to the sanitary sewer
system. The municipality should have a written policy on how it handles adjustments.
JJ
Question 19
Yes
No
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Question 20
Yes
No
If meters aren't available and the volume and strength of all users' discharges are about
equal, user charges may be based on equivalent dwelling units. Flow from small commer-
cial and industrial users can be based on number of employees, fixture units, or some
other factor that equates flow and strength of waste from non-residential users to that of
residential users. This method is recommended only where no water meters exist, and it's
only appropriate for small non-residential users that produce domestic wastewater.
How does the utility handle high-strength discharges?
Residential users usually contribute what's classified as "normal-strength" wastewater to
the sewer system. If this utility has commercial or industrial users who contribute "high-
strength" or toxic wastes into the sewer system, then several items must be examined.
Identify high-strength waste dischargers. Are they billed a surcharge? A surcharge is
normally applied to dischargers whose waste exceeds the strength of normal domestic
sanitary sewage. It costs more (in terms of energy requirements, chemicals, and man-
power) to treat high-strength waste, and a surcharge is a method to recover those "extra"
expenses. Surcharge rates apply to wastewater parameters such as biochemical oxygen
demand (BOD), total suspended solids (TSS), oil and grease (O&G), metals, and so forth.
Does the wastewater system have high-strength dischargers?
List them:
List basis for surcharge:
(BOD, TSS, metals, etc.)
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Is an equitable surcharge assessed each high-strength discharger?
Notes:
Is the user charge system proportional?
The answers to questions 16, 17, 19, and 21 must be either Yes or NfA before you can
answer Yes to question 22. The answers for questions 18 and 20 may be either Yes or No.
Reference - CFR 40 6 35,2140 (a) and (I) and Managing Your Utility's Money, EPA publication 430/09-91-
014.
Question 21
Yes
No
N/A
U
Question 22
Yes
No
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LL
Question 23
Yes
No
Question 24
Yes
No
DO OTHER REQUIREMENTS APPLY?
Yes! Several miscellaneous requirements apply to grantee user charge systems.
At least once a year, users must be notified of the wastewater rates and how they are
applied to wastewater treatment services. Notices are usually sent out with bills. The
municipalities may also publish the information in local newspapers. For systems based on
ad valorem taxes, the amount of the money paid for wastewater services is stated in the
property owner's tax bill.
Are users notified annually of the rates and how revenues are applied to
wastewater treatment services?
How?
(sent with bills, special mailing, etc.)
Reference - 40 CFR § 35.2140(c),
Every other year, grantees must review the wastewater contribution of users, total OM&R
costs, and the adequacy of user charges. Ask:
Are costs shared proportionally?
Are sufficient revenues generated to cover costs of operation?
Are any excess revenues applied back to the user class from whom they were
collected?
Are biennial reviews conducted of operation, maintenance, and equipment
replacement (OM&R) charges?
Reference - 40 CFR § 35,929-2(b)
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Does the wastewater system have infiltration/Inflow (I/I)?
Acceptable ways to handle treatment costs for these flows are:
1. distribute costs associated with I/I the same way other OM&R costs are distributed to
users; or
2. distribute costs via one or a combination of:
« flow volume of the users,
• land area of the users,
• number of hookups or discharges of the user, or
• property valuation (only if the user charge system is based on ad valorem taxes).
Are OM&R costs for extraneous flows distributed fairly?
Reference - 40 CFR § 35.2140(e) and § 35,929-2{d).
Revenue may be generated by the sale of treatment byproducts, lease of the land, or sale
of crops grown on the land. If the operation generates revenue, it must be used to reduce
all users' charges proportionally by offsetting OM&R costs.
Does the wastewater operation generate revenues?
_LJ
Question 25
Yes
No
Question 26
Yes
No
N/A
Question 27
Yes
No
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Question 28
Yes
No
N/A
Question 29
Yes
No
Question 30
Yes
No
Are operational revenues used to reduce user charges proportionally?
Reference - 40 CFR § 35.21 40(().
The municipality must enact a user charge system before the treatment works goes into
operation and implement it for the useful life of the treatment works,
Has the user charge system been legally adopted by the municipality's gov-
erning body?
Reference - 40 CFR § 35.2208.
All municipalities contributing wastes to the treatment works must legally adopt and
implement user charge systems that comply with the regulations. Each user class pays its
proportionate share of OM&R costs. These costs are based on the user's proportion of the
total wastewater.
Are any users located outside the utility's political boundary (for instance,
other municipalities or utility districts)?
20
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Do all municipalities contributing wastewater to the treatment works comply
with the requirements of proportionality, legislative enactments, and good
financial management?
Reference - 40 CFR § 35.2140(g) and § 35-929-2(e).
The requirements outlined in this guide and specified in the CFR references take prece-
dence over any state or municipal user charge agreements or requirements.
Is the utility's user charge system consistent with CFR requirements and
does It override any Inconsistent agreements or contracts?
Reference - 40 CFR § 35,2140(h) . § 35.2208, 35.929-2(g).
The first year's operation costs are usually estimated from past operations of an existing
treatment works.
If this Is the first year of operation, were operation and maintenance charges
determined properly?
Reference - 40 CFR § 35.929-2(a).
Question 31
Yes
No
N/A
Question 32
Yes
No
Question 33
Yes
No
N/A
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Question 34
Yes
No
Question 35
Yes
No
Does the user charge system comply with miscellaneous requirements?
You must answer either Yes or N/A to questions 23, 24, 26, 28, 29, 31, 32, and 33 before
you can answer Yes to question 34. Questions 25, 27, and 30 may be answered either Yes
or No.
ARE THERE SPECIAL REQUIREMENTS
FOR INDUSTRIAL USERS?
Yes. The CFR imposes some special requirements on industrial users. Industrial users are
users that:
1. discharge a volume exceeding 25,000 gallons per day or BOD or TSS equal to or
greater than that found in 25,000 gallons per day of sanitary waste; or
2. discharge toxic pollutants that contaminate the sludge, interfere with the treatment
process, create a hazard or nuisance, or adversely affect receiving waters.
Does the utility have industrial users?
Each industrial user discharging high-strength BOD or TSS waste must pay a surcharge
fee for treatment of these wastes. Each user that discharges toxic pollutants that increase
the cost of managing effluent or sludge must pay for such increased cost. (Refer to ques-
tions 20 and 21.)
22
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Does each Industrial user pay its fair share of OM&R costs based upon
actual use of the wastewater facility?
A "significant industrial user" is a user that contributes more than 10 percent of the flow
or pollutants for which the treatment plant is designed to handle.
Does the utility have any significant Industrial users?
The CFR requires significant industrial users to pay that portion of the grant amount
associated with the treatment of its wastes. This addresses capital project (not OM&R)
costs.
Did significant industrial users pay their fair share of capital costs for the
project?
Is the utility required to have a pretreatment program?
JJ
Question 36
Yes
No
N/A
Question 37
Yes
No
Question 38
Yes
No
N/A
Question 39
Yes
No
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Question 40
Yes
No
N/A
Question 41
Yes
No
Are the OM&R costs of the pretreatment program paid proportionally by the
pretreatment customers?
Reference - 40 CFR § 35,925-11 and § 35.929-1 (b).
Does the grantee's user charge system comply with Industrial user require-
ments?
Answer Yes to question 41 only if you answered Yes or NlA to questions 36, 38, and 40.
The answers to questions 35, 37, and 39 may be either Yes or No.
WHAT'S THE CONCLUSION?
You may have noticed some of the previous questions were in larger type and all capital
letters. You evaluated those six major requirements for wastewater user charge systems:
1. Do You Need to Follow This Guide?
2, What's a User Charge System, Anyway?
3. Why are Financial and Operational Management Important?
Do Revenues Cover Expenses?
Is Operational Management Adequate?
4, Why Are Proportional Charges Important?
5. Do Other Requirements Apply?
6. Are There Special Requirements for Industrial Users?
This user charge system is in compliance with CFR only if you are able to answer Yes to
questions 1, 3, 15, 22, 34, and 41.
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SUMMARY CHECKLIST
I. Do you need to follow this guide?
2. Is the utility's user charge system based on either actual use or ad valorem taxes?
3. Do revenues cover expenses of operation?
4. Does the utility prepare an annual budget of wastewater revenues and expenses?
5. Does the utility prepare actual vs. budgeted comparisons for revenues and
expenses?
6. Does the wastewater budget show revenues and expenses by line item?
7. Does the utility maintain adequate operating and coverage ratios?
8. Does the utility receive monthly accounting reports for revenues and expenses?
9. Does the utility maintain all records for at least four years?
10. Does the utility have written operating policies and procedures?
11. Does the organizational structure of the utility operate efficiently?
12. Is the staff highly motivated and well trained?
13. Does the wastewater treatment facility appear to be well operated?
14. Is the utility in compliance with its discharge permit?
15. Is operational management adequate?
16. Does each user receive a bill for services?
Acceptable Answers
Yes
No
25
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Acceptable Answers
Yes
— — •
No
N/A
17,
18.
19,
20.
7.1
22.
23.
24.
25.
?fi
27.
98
29.
30.
31
17. Does the rate structure identify user classes?
18. Does the rate structure offer lower rates for low-income residential users?
Does the utility charge a minimum bill?
Does the utility have high-strength discharges into the sewer system?
Is an equitable surcharge assessed each high-strength discharger?
Is the user charge system proportional?
Are users notified annually of the rates and how revenues are applied to wastewater
treatment services?
Are biennial reviews of operation and maintenance (O&M) charges conducted?
Does the wastewater system have infiltration/inflow (I/I)?
Are OM&R costs for extraneous flows distributed fairly?
Does the wastewater operation generate revenues?
Are operational revenues used to reduce user charges proportionally?
Has the user charge system been legally adopted by the municipality's governing
body?
Are any users located outside the utility's political boundary?
Do all municipalities contributing wastewater to the treatment system comply with
requirements of proportionality, legislative enactments, and good financial manage-
ment?
26
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Acceptable Answers
Yes
32. Is the utility's user charge system consistent with CFR requirements and does it
override any inconsistent agreements or contracts?
33. If this is the first year of operation, were operation and maintenance charges deter-
mined properly?
34. Does the utility's user charge system comply with miscellaneous requirements?
35. Does the utility have industrial users?
36. Does each industrial user pay its fair share of OM&R costs based on actual use of
the wastewater system?
37. Does the utility have any significant industrial users?
38. Did significant industrial users pay their fair share of capital costs for the project?
39. Is the utility required to have a pretreatment program?
40. Are the costs of implementing the pretreatment program paid proportionally by the
pretreatment customers?
41. Does the grantee's user charge system comply with industrial user requirements?
No
N/A
Model User Charge Systems
40 CFR § 35, Subpart E, Appendix B, Federal Guidelines - User Charges for Operation and Maintenance of Publicly Owned
Treatment Works contains model user charge systems.
27
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APPENDIX A
Code of Federal Regulations
§35,925-11 User charges and industrial cost recovery.
That, in the case of grant assistance for a project involv-
ing step 2 or step 3, the grantee has complied or will comply
with the requirements for user charge and industrial cost
recovery systems. (See §§ 35.928 et seq., 35.929 et seq.,
35.935-13, and 35.935-15.)
(a) Grants awarded before July 1, 1979. Grantees must
submit a schedule of implementation to show that their user
charge and industrial cost recovery systems will be approved
in accordance with the requirements of §§35.935-13 and
35,935-15.
(b) Grants awarded after June 30, 1979. The grantee's
user charge and industrial cost recovery systems must be
approved before the award of step 3 grant assistance.
(c) Letters of intent. In the case of any grant assistance
for a project involving step 2 or step 3, the applicant must
have received signed letters of intent from each significant
industrial user stating that it will pay that portion of the grant
amount allocable to the treatment of its wastes. Each such
letter shall also include a statement of the industrial user's
intended period of use of the treatment works. A significant
industrial user is one that will contribute greater than 10
percent of the design flow or design pollutant loading of the
treatment works. In addition, the applicant must agree to
require all industrial users to pay that portion of the grant
amount allocable to the treatment of wastes from such users.
28
§ 35.929 Requirements for user charge system.
The Regional Administrator shall approve the grantee's
user charge system and the grantee shall implement and
maintain it in accordance with § 35.935-13 and the require-
ments in §§ 35.929-1 through 35.929-3. The grantee shall be
subject to the noncompliance provisions of § 35.965 for
failure to comply.
§ 35.929-1 Approval of the user charge system.
The Regional Administrator may approve a user charge
system based on either actual use under paragraph (a) of this
section or ad valorem taxes under paragraph (b) of this
section. The general requirements in §§ 35.929-2 and 35.929-
3 must also be satisfied.
(a) User charge system based on actual use. A grantee's
user charge system based on actual use (or estimated use) of
waste water treatment services may be approved if each user
(or user class) pays its proportionate share of operation and
maintenance (including replacement) costs of treatment works
within the grantee's service area, based on the user's propor-
tionate contribution to the total waste water loading from all
users (or user classes). To insure a proportional distribution
of operation and maintenance costs to each user (or user
class), the user's contribution shall be based on factors such
as strength, volume, and delivery flow rate characteristics.
(b) User charges based on ad valorem taxes, A grantee's
user charge system (or the user charge system of a sub-
scriber, i.e., a constituent community receiving waste treat-
ment services from the grantee) which is based on ad valo-
rem taxes may be approved if it meets the requirements of
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paragraphs (b)(l) through (b)(7) of this section. If the
Regional Administrator determines that the grantee did not
have a dedicated ad valorem tax system on December 27,
1977, meeting the requirements of paragraphs (b)(l) through
(b)(3) of this section, the grantee shall develop a user charge
system based on actual use under § 35.929-1 (a).
(1) The grantee (or subscriber) had in existence on
December 27, 1977, a system of ad valorem taxes which
collected revenues to pay the cost of operation and mainte-
nance of waste water treatment works within the grantee's
service area and has continued to use that system.
(2) The grantee (or subscriber) has not previously
obtained approval of a user charge system on actual use.
(3) The system of ad valorem taxes in existence on
December 27, 1977, was dedicated ad valorem tax system.
(i) A grantee's system will be considered to be dedicated
if the Regional Administrator determines that the system
meets all of the following criteria:
(A) The ad valorem tax system provided for a separate
tax rate or for the allocation of a portion of the taxes col-
lected for payment of the grantee's costs of waste water
treatment services;
(B) The grantee's budgeting and accounting procedures
assured that a specified portion of the tax funds would be
used for the payment of the costs of operation and mainte-
nance;
(C) The ad valorem tax system collected tax funds for the
costs of waste water treatment services which could not be or
historically were not used for other purposes; and
(D) The authority responsible for the operation and main-
tenance of the treatment works established the budget for the
costs of operation and maintenance and used those specified
amounts solely to pay the costs of operation and maintenance.
(ii) A subscriber's system based on ad valorem taxes will
be considered to be dedicated if a contractual agreement or a
charter established under State law existed on December 27,
1977, which required the subscriber to pay its share of the
cost of waste water treatment services,
(4) A user charge system funded by dedicated ad valorem
taxes shall establish, as a minimum, the classes of users listed
below:
(i) Residential users, including single-family and multi-
family dwellings, and small nonresidential users, including
nonresidential commercial and industrial users which intro-
duce no more than the equivalent of 25,000 gallons per day
of domestic sanitary wastes to the treatment works:
(ii) Industrial and commercial users;
(A) Any nongovernmental user of publicly owned treat-
ment works which discharges more than 25,000 gallons per
day (gpd) of sanitary waste; or a volume of process waste, or
combined process and sanitary waste, equivalent to 25,000
gpd of sanitary waste. The grantee, with the Regional
Administrator's approval, shall define the strength of the
residential discharges in terms of parameters including, as a
minimum, biochemical oxygen demand (BOD) and suspended
solids (SS) per volume of flow. Dischargers with a volume
exceeding 25,000 gpd or the weight of BOD or SS equivalent
to that weight found in 25,000 gpd of sanitary waste are
considered industrial users.
(B) Any nongovernmental user of a publicly owned treat-
ment works which discharges waste water to the treatment
works which contains toxic pollutants or poisonous solids,
liquids, or gases in sufficient quantity either singly or by
interaction with other wastes, to contaminate the sludge of
any municipal systems, or to injure or to interfere with any
sewage treatment process, or which constitutes a hazard to
humans or animals, creates a public nuisance, or creates any
hazard in or has an adverse effect on the waters receiving
any discharge from the treatment works.
(iii) Users which pay no ad valorem taxes or receive
substantial credits in paying such taxes, such as tax exempt
29
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institutions or governmental users, but excluding publicly
owned facilities performing local governmental functions
(e.g., city office building, police station, school) which dis-
charge solely domestic wastes.
(5) The grantee must be prepared to demonstrate for the
Regional Administrator's approval that its system of evaluat-
ing the volume, strength, and characteristics of the discharges
from users or categories of users classified within the sub-
class of small nonresidential users is sufficient to assure that
such users or the average users in such categories do not
discharge either toxic pollutants or more than the equivalent
of 25,000 gallons per day of domestic wastewater.
(6) The ad valorem user charge system shall distribute the
operation and maintenance costs for all treatment works in
the grantee's jurisdiction to the residential and small nonresi-
dential user class, in proportion to the use of the treatment
works by this class. The proportional allocation of costs for
this user class shall take into account the total waste water
loading of the treatment works, the constituent elements of
the wastes from this user class and other appropriate factors.
The grantee may assess one ad valorem tax rate to this entire
class of users or, if permitted under State law, the grantee
may assess different ad valorem tax rates for the subclass of
residential users and the subclass of small nonresidential users
provided the operation and maintenance costs are distributed
proportionately between these subclasses.
(7) Each member of the industrial and commercial user
class described under paragraph (b)(4)(ii) of this section and
of the user class which pays no ad valorem taxes or receives
substantial credits in paying such taxes described under para-
graph (b)(4)(iii) of this section shall pay its share of the
costs of operation and maintenance of the treatment works
based upon charges for actual use (in accordance with §
35.929-1 (a). The grantee may use its ad valorem tax system
to collect, in whole or in part, those charges from members
30
of the industrial and large commercial class where the follow-
ing conditions are met:
(i) A portion or all of the ad valorem tax rate assessed to
members of this class has been specifically designated to pay
the costs of operation and maintenance of the treatment
works, and that designated rate is uniformly applied to all
members of this class:
(ii) A system of surcharges and rebates is employed to
adjust the revenues from the ad valorem taxes collected from
each user of this class in accordance with the rate designated
under paragraph (b)(7)(i) of this section, such that each mem-
ber of the class pays a total charge for its share of the costs
of operation and maintenance based upon actual use.
§ 35.929-2 Genera! requirements for all user charge
systems.
User charge systems based on actual use under § 35.929-
l(a) or ad valorem taxes under § 35.929-l(b) shall also meet
the following requirements:
(a) Initial basis for operation and maintenance charges,
For the first year of operation, operation and maintenance
charges shall be based upon past experience for existing
treatment works or some other method that can be demon-
strated to be appropriate to the level and type of services
provided.
(b) Biennial review of operation and maintenance charges.
The grantee shall review not less often than every 2 years the
waste water contribution of users and user classes, the total
costs of operation and maintenance of the treatment works,
and its approved user charge system. The grantee shall revise
the charges for users or user classes to accomplish the fol-
lowing:
(1) Maintain the proportionate distribution of operation
and maintenance costs among users and user classes as
required herein;
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(2) Generate sufficient revenue to pay the total operation
and maintenance costs necessary to the proper operation and
maintenance (including replacement) of the treatment works;
and
(3) Apply excess revenues collected from a class of users
to the costs of operation and maintenance attributable to that
class for the next year and adjust the rate accordingly.
(c) Toxic pollutants. The user charge system shall provide
that each user which discharges any toxic pollutants which
cause an increase in the cost of managing the effluent or the
sludge of the grantee's treatment works shall pay for such
increased costs.
(d) Charges for operation and maintenance for extraneous
flows. The user charge system shall provide that the costs of
operation and maintenance for all flow not directly attribut-
able to users (i.e., infiltration/inflow) be distributed among all
users of the grantee's treatment works system based upon
either of the following:
(1) In the same manner that it distributes the costs of
operation and maintenance among users (or user cla'sses) for
their actual use, or
(2) Under a system which uses one of any combination of
the following factors on a reasonable basis:
(i) Flow volume of the users;
(ii) Land area of the users;
(iii) Number of hookups or discharges to the users;
(iv) Property valuation of the users, if the grantee has a
user charge system based on ad valorem taxes approved under
§ 35.929-l(b).
(e) Adoption of system. One or more municipal legislative
enactments or other appropriate authority must incorporate the
user charge system. If the project is a regional treatment
system accepting wastewaters from other municipalities, the
subscribers receiving waste treatment services from the
grantee shall adopt user charge systems in accordance with
section 204(b)(l)(A) of the Act and §§ 35,929 through
35.929-3. These user charge systems shall also be incorpo-
rated in appropriate municipal legislative enactments or other
appropriate authority of all municipalities contributing wastes
to the treatment works. The public shall be informed of the
financial impact of the user charge system on them and shall
be consulted prior to adoption of the system, in accordance
with 40 CFR part 25.
(f) Notification. Each user charge system must provide
that each user be notified, at least annually, in conjunction
with a regular bill, of the rate and that portion of the user
charges or ad valorem taxes which are attributable to waste
water treatment services.
(g) Inconsistent agreements. The grantee may have preex-
isting agreements which address: (1) The reservation of
capacity in the grantee's treatment works, or (2) the charges
to be collected by the grantee in providing wastewater treat-
ment services or reserving capacity. The user charge system
shall take precedence over any terms or conditions of agree-
ments or contracts between the grantee and users (including
industrial users, special districts, other municipalities, or
Federal agencies or installations) which are inconsistent with
the requirements of section 204(b)(l)(A) of the Act and these
regulations.
(h) Costs of pretreatment program. A user charge system
submitted by a municipality with an approved pretreatment
program shall provide that the costs necessary to carry out
the program and to comply with any applicable requirements
of section 405 of the Act and related regulations are included
within the costs of operation and maintenance of the system
and paid through user charges, or are paid in whole or in
part by other identified sources of funds.
[43 FR 44049, Sept. 27, 1978, as amended at 44 FR 10304,
Feb. 16, 1979]
31
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§ 35,929-3 Implementation of the user charge system.
(a) When a grantee's user charge system is approved,
implementation of the approved system shall become a condi-
tion of the grant.
(b) The grantee shall maintain such records as are neces-
sary to document compliance with these regulations.
(c) Appendix B to this subpart contains guidelines with
illustrative examples of acceptable user charge systems.
(d) The Regional Administrator may review, no more
often than annually, a grantee's user charge system to assure
that it continues to meet the requirements of §§ 35.929-1
through 35.929-3.
§ 35.935-13 Submission and approval of user charge systems.
The grantee shall obtain the approval of the Regional
Administrator of its system of user charges. (See also §
35.929 et seq.)
(a) Step 3 grant assistance awarded under regulations
promulgated on February 11, 1974, (1) Except as paragraph
(a)(2) of this section provides, the grantee must obtain the
Regional Administrator's approval of its system of user
charges based on actual use which complies with § 35,929-
l(a). The Regional Administrator shall not pay more than 50
percent of the Federal share of any step 3 project unless the
grantee has submitted adequate evidence of timely develop-
ment of its system of user charges nor shall the Regional
Administrator pay more than 80 percent of the Federal share
unless he has approved the system.
(2) A grantee which desires approval of a user charge
system based on ad valorem taxes in accordance with §
35.929-!(b) shall submit to the Regional Administrator by
July 24, 1978, evidence of compliance of its system with the
criteria in § 35.929-1 (b)(l) through (b)(3). As soon as pos-
QO
sible, the Regional Administrator shall advise the grantee if
the system complies with § 35.929-1 (b)(l). The Regional
Administrator's determination may be appealed in accordance
with subpart J, "Disputes," of part 30 of this subchapter.
(i) Grantees whose ad valorem tax systems meet the crite-
ria of § 35.929-1 (b)(l) through (b)(3). Any step 3 payments
held by the Regional Administrator at 50 percent or 80 per-
cent for failure to comply with the requirement for develop-
ment of a user charge system shall be released. However, the
grantee shall obtain approval of its user charge system by
June 30, 1979 or no further payments will be made until the
sytem is approved and the grants may be terminated or annulled.
(ii) Grantees whose ad valorem tax systems do not meet
the criteria of § 35.929-1 (b)(l) through (b)(3). Step 3 grants
will continue to be administered in accordance with paragraph
(a)(l) of this section.
(b) Step 3 grant assistance awarded after April 24, 1978,
but before July 1, 1979. The grantee must obtain approval of
its user charge system based on actual use or ad valorem
taxes before July 1, 1979. The Regional Administrator may
not make any payments on these grants, may terminate or
annul these grants, and may not award any new step 3 grants
to the same grantee after June 30, 1979, if the user charge
system has not been approved. The Regional Administrator
shall approve the grantee's user charge or ad valorem tax
rates and the ordinance required under § 35.929-2(e) and the
grantee shall enact them before the treatment works con-
structed with the grant are placed in operation.
(c) Step 3 grant assistance awarded after June 30, 1979.
The Regional Administrator may not award step 3 grant
assistance unless he has approved the user charge system
based on actual use or ad valorem taxes. The Regional
Administrator shall approve the grantee's user charge or ad
valorem tax rates and the ordinance required under § 35.929-
2(e) and the grantee shall enact them before the treatment
works constructed with the grant are placed in operation.
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§35.2122 Approval of user charge system and proposed
sewer use ordinance.
If the project is for Step 3 grant assistance, unless it is
solely for acquisition of eligible land, the applicant must
obtain the Regional Administrator's approval of its user
charge system (§35.2140) and proposed (or existing) sewer
use ordinance §35.2130), If the applicant has a sewer use
ordinance or user charge system in effect, the applicant shall
demonstrate to the Regional Administrator's satisfaction that
they meet the requirements of this part and are being enforced,
(Approved by the Office of Management and Budget under
control number 2040-0027)
§35.2140 User charge system.
The user charge system (see §§35.2122 and 35.2208) must
be designed to produce adequate revenues required for opera-
tion and maintenance (including replacement). It shall provide
that each user which discharges pollutants that cause an
increase in the cost of managing the effluent or sludge from
the treatment works shall pay for such increased cost. The
user charge system shall be based on either actual use under
paragraph (a) of this section, ad valorem taxes under para-
graph (b) of this section, or a combination of the two.
(a) User charge system based on actual use. A grantee's
user charge system based on actual use (or estimated use) of
wastewater treatment services shall provide that each user (or
user class) pays its proportionate share of operation and
maintenance (including replacement) costs of treatment works
within the grantee's service area, based on the user's propor-
tionate contribution to the total wastewater loading from al!
users (or user classes).
(b) User charge system based on ad valorem taxes, A
grantee's user charge system which is based on ad valorem
taxes may be approved if:
(1) On December 27, 1977, the grantee had in existence a
system of dedicated ad valorem taxes which collected rev-
enues to pay the cost of operation and maintenance of waste-
water treatment works within the grantee's service area and
the grantee has continued to use that system;
(2) The ad valorem user charge system distributes the
operation and maintenance (including replacement) costs for
all treatment works in the grantee's jurisdiction to the resi-
dential and small non-residential user class (including at the
grantee's option nonresidential, commercial and industrial
users that introduce no more than the equivalent of 25,000
gallons per day of domestic sanitary wastes to the treatment
works), in proportion to the use of the treatment works by
this class; and
(3) Each member of the industrial user and commercial
user class which discharges more than 25,000 gallons per day
of sanitary waste pays its share of the costs of operation and
maintenance (including replacement) of the treatment works
based upon charges for actual use.
(c) Notification. Each user charge system must provide
that each user be notified, at least annually, in conjunction
with a regular bill (or other means acceptable to the Regional
Administrator), of the rate and that portion of the user
charges or ad valorem taxes which are attributable to waste-
water treatment services.
(d) Financial management system. Each user charge sys-
tem must include an adequate financial management system
that will accurately account for revenues generated by the
system and expenditures for operation and maintenance
(including replacement) of the treatment system, based on an
adequate budget identifying the basis for determining the
annual operation and maintenance costs and the costs of
personnel, material, energy and administration.
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(e) Charges for operation and maintenance for extraneous
flows. The user charge system shall provide that the costs of
operation and maintenance for all flow not directly attribut-
able to users (i.e., infiltration/inflow) be distributed among all
users based upon either of the following:
(1) In the same manner that it distributes the costs for
their actual use, or
(2) Under a system which uses one or any combination of
the following factors on a reasonable basis:
(i) Flow volume of the users;
(ii) Land area of the users;
(iii) Number of hookups or discharges of the users;
(iv) Property valuation of the users, if the grantee has an
approved user charge system based on ad valorem taxes.
(0 After completion of building a project, revenue from
the project (e.g., sale of a treatment-related by-product; lease
of the land; or sale of crops grown on the land purchased
under the grant agreement) shall be used to offset the costs
of operation and maintenance. The grantee shall proportion-
ately reduce all user charges.
(g) Adoption of system. One or more municipal legislative
enactments or other appropriate authority must incorporate the
user charge system. If the project accepts wastewater from
other municipalities, the subscribers receiving waste treatment
services from the grantee shall adopt user charge systems in
accordance with this section. These user charge systems shall
also be incorporated in appropriate municipal legislative
enactments or other appropriate authority of all municipalities
contributing wastes to the treatment works.
(h) Inconsistent agreements. The user charge system shall
take precedence over any terms or conditions of agreements
or contracts which are inconsistent with the requirements of
section 204(b)(l)(A) of the Act and this section.
(i) Low income residential user rates. (1) Grantees may
establish lower user charge rates for low income residential
users after providing for public notice and hear1- A low
income residential user is any residence with a isehold
income below the Federal poverty level as defined in 45 CFR
1060,2 or any residence designated as low income under State
law or regulation.
(2) Any lower user charge rate for low income residential
users must be defined as a uniform percentage of the user
charge rate charged other residential users.
(3) The costs of any user charge reductions afforded a
low income residential class must be proportionately absorbed
by all other user classes. The total revenue for operation and
maintenance (including equipment replacement) of the facili-
ties must not be reduced as a result of establishing a low
income residential user class.
(Approved by the Office of Management and Budget under
control number 2040-0027)
[49 FR 6234, Feb. 17, 1984, as amended at 55 FR 27097,
June 29, 1990]
§ 35.2208 Adoption of sewer use ordinance and user
charge system.
The grantee shall adopt its sewer use ordinance and imple-
ment its user charge system developed under §§ 35.2130 and
35.2140 before the treatment works is placed in operation.
Further, the grantee shall implement the user charge system
and sewer use ordinance for the useful life of the treatment
works.
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APPENDIX B - FEDERAL GUIDELINES
User Charges for Operation and Maintenance
of Publicly Owned Treatment Works
(a) Purpose. To set forth advisory information concerning
user charges based on actual use pursuant to section 204 of
the Clean Water Act, hereinafter referred to as the Act. Appli-
cable requirements are set forth in subpart E (40 CFR part 35).
(b) Authority. The authority for establishment of the user
charge guidelines is contained in section 204(b)(2) of the Act.
(c) Background. Section 204(b)(l) of the Act provides that
after March 1, 1973, Federal grant applicants shall be
awarded grants only after the Regional Administrator has
determined that the applicant has adopted or will adopt a
system of charges to assure that each recipient of waste
treatment services will pay its proportionate share of the costs
of operation and maintenance, including replacement. The
intent of the Act with respect to user charges is to distribute
the cost of operation and maintenance of publicly owned
treatment works to the pollutant source and to promote self
sufficiency of treatment works with respect to operation and
maintenance costs. The 1977 Amendments amended section
204(b) to allow grantees to establish user charge systems
based on ad valorem taxes. This appendix does not apply to
ad valorem user charge systems.
(d) Definitions - (1) Replacement. Expenditures for obtain-
ing and installing equipment, accessories, or appurtenances
which are necessary to maintain the capacity and performance
during the service life of the treatment works for which such
works were designed and constructed. The term "operation
and maintenance" includes replacement.
(2) User charge. A charge levied on users of treatment
works for the cost of operation and maintenance of such
works.
(e) Classes of users. At least two basic types of user
charge systems are common. The first is to charge each user
a share of the treatment works operation and maintenance
costs based on his estimate of measured proportional contri-
bution to the total treatment works loading. The second sys-
tem establishes classes for users having similar flows and
waste water characteristics; i.e. levels of biochemical oxygen
demand, suspended solids, etc. Each class is then assigned its
share of the waste treatment works operation and maintenance
costs based on the proportional contribution of the class to
the total treatment works loading. Either system is in compli-
ance with these guidelines.
(0 Criteria against which to determine the adequacy of
user charges. The user charge system shall be approved by
the Regional Administrator and shall be maintained by the
grantee in accordance with the following requirements:
(1) The user charge system must result in the distribution
of the cost of operation and maintenance of treatment works
within the grantee's jurisdiction to each user (or user class)
in proportion to such user's contribution to the total wastewa-
ter loading of the treatment works. Factors such as strength,
volume, and delivery flow rate characteristics shall be consid-
ered and included as the basis for the user's contribution to
ensure a proportional distribution of operation and mainte-
nance costs to each user (or user class).
(2) For the first year of operation, operation and mainte-
nance costs shall be based upon past experience for existing
treatment works or some other rational method that can be
demonstrated to be applicable.
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(3) The grantee shall review user charges annually and
revise them periodically to reflect actual treatment works
operation and maintenance costs.
(4) The user charge system must generate sufficient rev-
enue to offset the cost of all treatment works operation and
maintenance provided by the grantee.
(5) The user charge system charge must be incorporated
in one or more municipal legislative enactments or other
appropriate authority. If the project is a regional treatment
works accepting wastewaters from treatment works owned by
others, then the subscribers receiving waste treatment services
from the grantee shall have adopted user charge systems in
accordance with these guidelines. Such user charge systems
shall be incorporated in the appropriate municipal legislative
enactments or other appropriate authority.
(g) Model user charge systems. The user charge system
adopted by the applicant must result in the distribution of
treatment works operation and maintenance costs to each user
(or user class) in approximate proportion to his contribution
to the total wastewater loading of the treatment works. The
following user charge models can be used for this purpose;
however, the applicant is not limited to their use. The sym-
bols used in the models are as defined below:
C =
C=
Vc=
V =
VT=
B=
36
Total operation and maintenance (O&M) costs per unit
of time.
A user's charge for O&M per unit of time.
A surcharge for wastewaters of excessive strength.
O&M cost for transportation and treatment of a unit of
wastewater volume.
Volume contribution from a user per unit of time.
Total volume contribution from all users per unit of
time.
O&M cost for treatment of a unit of biochemical oxygen
demand (BOD),
Bu= Total BOD contribution from a user per unit of time.
BT= Total BOD contribution from all users per unit of time.
B= Concentration of BOD from a user above a base 1 'Cl.
Sc= O&M cost for treatment of a unit of suspended solids,
Su= Total suspended solids contribution from a user per unit
of time.
S= Concentration of SS from a user above a base level.
Pc= O&M cost for treatment of a unit of any pollutant.
Pu= Total contribution of any pollutant from a user per unit
of time.
PT= Total contribution of any pollutant from all users per
unit of time.
P= Concentration of any pollutant from a user above a base
level.
(1) Model No. 1 . If the treatment works is primarily flow
dependent or if the BOD, suspended solids, and other pollut-
ant concentrations discharged by all users are approximately
equal, then user charges can be developed on a volume basis
in accordance with the model below:
Cu = C/VT(Vu)
(2) Model No, 2. - When BOD, suspended solids, or other
pollutant concentrations from a user exceed the range of
concentration of these pollutants in normal domestic sewage,
a surcharge added to a base charge, calculated by means of
Model No. 1, can be levied. The surcharge can be computed
by the model below:
C = [B(B) + S(S)
(3) Model No. 3. - This model is commonly called the
"quantity/quality formula":
C = V V + B B +SS +PP
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(h) Other considerations, - (1) Quantity discounts to hirge
volume users will not be acceptable. Savings resulting from
economies of scale should be apportioned to all users or user
classes.
(2) User charges may be established based on a percent-
age of the charge for water usage only in cases where the
water charge is based on a constant cost per unit of consump-
tion.
[39 FR 5270, Feb. 11, 1974]
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