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SYSTEM DEVELOPMENT CHARGE METHODOLOGY · Project Cost Allocation (Improvement Fee)-The method for allocating future projects to growth. · Adjustments-Deductions or additions to the cost basis to recognize past or future capital funding methods. Each issue is discussed below. Step One- System Valuation Calculation of the reimbursement fee begins with a review of MWMC's fixed asset records to determine the value of the existing system. The system is valued based on the inflation adjusted original cost approach. Under this approach, the original cost of existing system assets is adjusted by the Engineering News-Record national 20-city average Construction Cost Index from the time of construction to estimate current values. The inflation adjusted cost approach recognizes appreciation in the system since assets were constructed and assumes that the wastewater system is maintained in perpetuity. Step Two- Existing System Allocation The existing system allocation methodology, for use in determining the reimbursement fee cost basis, is a three-step allocation process1 comprised of the following steps, as illustrated in Figure 2: R-1. Allocate existing facility costs to facility process components (e.g., primary treatment, secondary treatment). R-2. Allocate costs by component to system capacity parameters (e.g., average flow, peak flow). R-3. Allocate costs to growth based on estimated available capacity by service parameter. The allocation of existing facility costs to facility process components is fairly straight- forward, as most projects relate directly to an individual component (e.g., secondary clarifiers are a part of secondary treatment), or support the entire treatment system (e.g., control systems). Existing facility costs (valued in terms of inflation-adiusted costs) by process component are then allocated to capacity parameters based on the allocation fractions in Table $. The final step in the allocation process is to multiply the costs by capacity parameter by the percent of capacity available by parameter. To determine the available capacity for a parameter, the amount of capacity that is currently being used (or required for existing users) is subtracted from the current rated capacity. If the current capacity requirement is equal to or greater than the existing capacity, then there is no available capacity, and none of the costs related to that parameter is included in the reimbursement fee cost basis. Table 4 shows existing system available capacity by parameter based on system planning criteria. The documentation for these figures is provided in Appendix C. 1 The numbering of the steps for the existing system allocation process is preceded by an "R" to identify these steps as relating to the Reimbursement Fee calculation. Later processes relating to the Improvement Fee calculation are indicated by an 'T' in the number sequence. SEA31003271388(DG).DOC/041040034