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DUBLIN SAN RAMON SERVICE DISTRICT ttr o REGIONAL CONNECTION FEES to express actual capital costs experienced by the utility in terms of current dollars. An obvious advantage of the reproduction cost approach is that it gives consideration to changes in the value of money over time. Depreciation Considerations of the current value of utility facilities may also be materially affected by the effects of age and depreciation. Depreciation takes into account the anticipated losses in plant value caused by wear and tear, decay, inadequacy, and obsolescence. To provide appropriate recognition of the effects of depreciation on existing utility facilities, both the original cost and reproduction cost valuation measures can also be expressed on an original cost less depreciation (OCLD) and a reproduction cost less depreciation (RCLD) basis. These measures are identical to the aforementioned valuation methods, with the exception that accumulated depreciation is computed for each asset account based upon its age or condition, and deducted from the respective total original cost or reproduction cost to determine the OCLD or RCLD measures of plant value. Recognition of depreciation in establishing value for purposes of system development charge under the system buy -in approach is appropriate in consideration of the fact that, once the new connector has "bought into" the system, he assumes the same status as similar existing customers. This includes assumption of the same responsibilities for future replacement of worn out or obsolete facilities. System Development Charge Determination Methods Three methods of developing system development charges which are currently employed by wastewater utilities were introduced in a preceding section of this report. These include the system buy in, incremental cost pricing, and value -of- service methods, which are further described in the following paragraphs. System Buy -In Method Undcr this method, system development charges are based upon the "buy -in" concept that new customers, at the time of connection, should pay an amount per connection equal to the equity in the system attributable to existing customers. To recover this equity, system development charges should be designed to recover the cost or current value of applicable service facility capacity associated with each new customer connection. An appropriate basis for calculating a system development charge would include consideration of the total capital investment value Tess depreciation, less any outstanding utility dcbt in excess of available debt service reserves and unused construction funds, Tess any applicable grants or funding from non utility sources, divided by the facility service capacity. As previously discussed, there are two principal methods of determining the value of utility system investment: OCLD and RCLD. Unless the District desires to recover only the historical costs of investment, the RCLD value approach is considered to be the most appropriate valuation method because it recognizes the current value of plant investment.' It is noted that under the RCLD method, it is Please note that the HDR Report, local Connection Fee Stuck (2005) uses an RC basis to establish plant investment adjusted further with a 10 -year carrying charge. BLACK VEATCH 5 MAY 2010