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2.0 Overview of Connection Fees 2.1 Introduction An important starting point in establishing connection fees is to have a basic understanding of the purpose of these fees, along with criteria and general methodology that is used to establish cost -based connection fees. Presented in this section of the report is an overview of connection fees and the criteria and general methodology that is used to develop cost -based connection fees. 2.2 Defining Connection Fees The first step in establishing cost -based connection fees is to gain a better understanding of the definition of a system development charge (SDC) or connection fee (CF).1 For the purposes of this report, an SDC and /or CF is defined as follows: "System development charges are one -time charges paid by new development to finance construction of public facilities needed to serve them."2 Simply stated, connection fees are a contribution of capital to either reimburse existing customers for the available capacity in the existing system, or help finance planned future growth - related capacity improvements. At some utilities, connection fees may be referred to as system development charges, impact fees, capacity reserve charges, infrastructure investment fees, etc. Regardless of the label used to identify them, their objective is the same. That is, these charges are intended to provide funds to the utility to finance all or a part of the capital improvements needed to serve and accommodate new customer growth. Absent those fees, many utilities would likely be unwilling to build growth - related facilities (i.e., burden existing rate payers with the entire cost of growth - related capacity expansion). 2.3 Economic Theory and Connection Fees Connection fees are generally imposed as a condition of service. The objective of a connection fee is not merely to generate money for a utility, but to ensure that all customers seeking to connect to the utility's system bear an equitable share of the cost of excess capacity that existing customers have invested in the existing system and any future growth - related expansions. Through the implementation of fair and equitable connection fees, existing customers will not be unduly burdened with the cost of new development. By establishing cost -based recycled water connection fees, the City will be taking an important step in providing adequate infrastructure to meet growth- related needs, and more importantly, 1 System development charges and connection fees used interchangeably in this section of the report. System development charges are a more common term for these types of charges. 2 Arthur C. Nelson, System Development Charges for Water, Wastewater, and Stormwater Facilities Lewis Publishers, New York, 1995, p. 1, F Overview of Connection Fees 3 City of Pleasanton - Recycled Water Connection Fee