annual operating revenue requirement. The total revenues required on an annual basis adequate to meet all expenses and capital requirements of the utility.

capacity. The ability of available water utility resources to meet the quantity, quality, peak loads, and other service needs of the various customers or classes of customers served by the utility.

capital expenditures. Expenditures that result in the acquisition of or addition of fixed assets.

cash-needs approach. The method of determining annual operating revenue requirements based on all cash needs, including but not limited to, operation and maintenance expense, debt service, and capital expenditures from current revenues.

commodity costs. Costs that tend to vary with the quantity of water produced, including the cost of chemicals, a large part of power costs, and other elements that follow, or change almost directly with, the amount of water produced.

commodity-demand. The method of cost allocation in which the cost of service is allocated to the functional cost components of commodity, demand, and customer cost. Variable costs are allocated to the commodity component, with the balance of costs being allocated to the demand and customer components.

connection charge. The charge made by the utility to recover the cost of connecting the customer's service line to the utility's facilities. This charge is often considered as a contribution of capital by the customer or other agency receiving the service.

cost allocation. The procedure for classifying or assigning the costs of service to functional cost components for subsequent distribution to respective customer classes.

costs of service. The operating and capital costs incurred in meeting various aspects of providing water service, such as customer billing costs, demand related costs, and variable costs.

customer classification. The grouping of customers into homogeneous classes. Typically, water utility customers may be classified as residential, commercial, and industrial for rate-making and other purposes. For specific utilities, there may be a breakdown of these general classes into more specific groups. For example, the commercial class may be sub-divided into commercial-A, commercial-B, and commercial-C.

customer costs. Costs directly associated with serving customers, irrespective of the amount of water use. Such costs generally, include meter reading, billing, accounting, and collecting expense, and maintenance and capital costs related to meters and associated services.

debt. An obligation resulting from the borrowing of money or from the purchase of goods and services.

debt service. Expenditures for interest and principal repayment on debt instruments.

debt-service requirement. The amounts of money necessary to pay interest and principal requirements for a given series of years.

demand costs. Costs associated with providing facilities to meet demands placed on the system by customers. They include capital - related costs associated with those facilities plus related operation and maintenance expenses.

economies of scale. Exists when the unit or average cost of general water service decreases with the expansion of water system capacity. Economies of scale (or size) can be defined either in the context of changes in total system capacity or changes in a single component of the water system (such as treatment).

expenditures. Amounts paid or incurred for all purposes, including expenses, provision for retirement of debt, and capital outlays.

flat rate. A fixed charge for unmetered service, often simply based on the number of fixtures and water-using devices of the customer.

functional cost components. The distinct operational components of a water utility to which separate cost groupings are typically assigned. In the commodity-demand method, they are the components of commodity, demand, and customer costs.

inverted block rates. A schedule of rates applicable to blocks of increasing usage in which the usage in each succeeding block is charged at a higher unit rate than in the previous blocks. Generally, each successive
block rate may be applicable to a greater volume of water delivery than the preceding block(s).

low-income group. That sector of residential consumers having the lowest capability to pay for water service.

maintenance expenses. Part of operating expenses, including labor, materials, and other expenses, incurred for preserving the operating efficiency and/or physical condition of utility plant.

minimum charge. A minimum bill to a customer that includes a fixed volume of water delivered to the customer during the applicable period of time.

operating expenses. Expenses related to maintaining day-to-day utility functions, including operation and maintenance expenses, taxes and depreciation and amortization costs, but not interest payments or dividends.

rate blocks. Elements of a schedule of charges for specific usages within a certain defined volume and/or demand boundaries.

rate-making process. The process of developing and establishing rates and charges. The process is comprised of four phases: (1) determination of revenue requirements; (2) allocation of costs to the functional components of the cost of service; (3) distribution of the function costs of service to customer classes; and (4) development and design of a schedule of rates and charges to recover the revenue requirements.

rate schedule. Schedule of the rates and charges to the various classes and customers.

rate structure. The design and organization of billing charges by customer class to distribute the revenue requirement among customer classes and rating periods.

rate design. A process of matching the costs of service to be recovered to the unique economic, political, and social environments in which the water utility provides service.

revenue requirements. The sum total of the revenues required to pay all operating and capital costs of providing service.

service charge. A fixed charge usually designed to recover customer costs.

service connection. That portion of the service line from the utility's water main to and including the curb stop at or adjacent to the streetline or the customer's property line. It includes other valves, fittings, etc., that the utility may require at or between the main and the curb stop, but does not include the curb box.

service line. The pipe and all appurtenances that run between the utility's water main and the customer's place of use and includes fires lines.

system water losses. Water from all losses such as theft, illegal connections, unauthorized users, malfunctioning controls, differences in use quantities caused by meter error and any other losses which is not a result of a leak or a break.

tariff. The authorized list of charges for a utility's services.

test year. The annualized period for which costs are to be analyzed and rates established.

unit cost. The cost of producing a unit of a product or service. An example would be the cost of treating a thousand cu.m. of potable water for use by the water utility's customers.

unit service. An element of service for which a cost can be ascertained, such as thousand cu.m., hundred cu. ft., million gallons per day, monthly bill, etc.

water audit. A thorough accounting of all water into and out of a utility as well as an in-depth record and field examination of the distribution system that carries the water, with the intent to determine the operational efficiency of the system and identify sources of water loss and revenue loss.

water-rate strategy. The general scheme on how the district should go about determining a rate structure that is fair and acceptable to the majority of water users and when to apply it.

wholesale service customers. Service in which water is sold to a customer at one or more major points of delivery for its use or for resale within the wholesale customer's service area.