Whenever customers request a new service tap for either water or sewer, a tap fee should be required. Sometimes cities charge artificially low tap fees as a means of encouraging new growth. When the tap fee doesn’t even cover installation costs the difference must be made up through user charges to all ratepayers.
In establishing tap fees cities should consider that the new customer is connecting to an existing plant system for which they have shared no costs. To this extent tap fees may include more than just the cost to the utility of the physical installation. Several methods of calculating tap fees may be used. Primarily, they will use asset or plant in- service costs being shared by all customers. This cost should be updated from time to time to reflect customer/cost changes. It is not unusual for cities to charge $1,000 to $2,000 for tap fees. Although this may seem high, it is relatively low compared to the cost of digging a well or installing a septic tank. City auditors or MTAS finance and accounting personnel can assist in calculating the tap fee.
Tap fees will be recorded as revenues for the system. Tap fees provide an important resource for water and sewer utilities to recover installation costs from customers.