When a customer requests a new water or sewer service connection, the utility should charge a tap fee. Some cities keep tap fees artificially low to encourage growth, but if the fee does not at least cover the cost of installation, the shortfall must be absorbed through user charges paid by all customers.

In setting tap fees, cities should recognize that new customers are connecting to an existing utility system that was built and paid for by current and past ratepayers. For this reason, tap fees may justifiably include more than the direct installation cost. Many utilities calculate tap fees using a share of system or plant-in-service costs in addition to labor and material for the tap itself. These fees should be reviewed periodically and updated to reflect changes in system costs and customer base. City auditors or MTAS finance staff can assist in developing or recalculating tap fees.

Tap fees are recorded as system revenues and represent an important tool for utilities to recover connection costs fairly, without shifting the burden onto existing ratepayers.