Water Utility - System Development Charge (SDC) Revenue and Capital Funding
Recording the system development charge (SDC / connection fee) received from a new water or sewer customer representing their proportionate share of existing system capacity, with proper revenue recognition and capital use restrictions.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cash - System Development Charge (Water/Sewer) | Asset (+) | 12,500.00 | - |
| System Development Charge Revenue (Upon Connection Right Grant) | Revenue (+) | - | 12,500.00 |
💡 Accountant's Note
Water and wastewater utilities charge SDCs (also called connection fees, impact fees, or tap fees) to new customers connecting to the system. The SDC represents the new customer's share of the system's existing capacity investment. SDC rates must be supported by a cost study demonstrating the nexus between the fee and actual capacity cost (required under Oregon's Supreme Court SDC framework and most state SDC statutes). SDC revenue is typically restricted to capital expenditures only — it cannot be used for operating costs. For regulated water utilities, SDC accounting and rate-setting follows the state PUC's SDC regulations.
Practitioner & Systems Framework
💻 ERP Architecture
Track SDC revenue in a restricted capital fund. Maintain records of SDC collection by connection type (size, service type) and expenditure of SDC funds on eligible capital projects. State SDC statutes typically require refund of SDCs collected but not spent on capacity improvements within a specified period (7–10 years is common). Annual SDC reporting to the governing body or PUC is required.
⚠️ Audit Flags
Auditors verify that SDC fees were set using a PUC-approved methodology and that SDC revenue is spent on eligible capital projects (not operating costs). SDC nexus challenges (claiming the fee exceeds the actual cost of capacity provided) are the most common legal risk for water utilities. Unspent SDC balances approaching the refund deadline must be assessed.
📄 Required Documentation
SDC rate study (per state SDC statute methodology), connection permit records, SDC collection register, capital project expenditures funded by SDC, unspent SDC balance by connection vintage, state SDC compliance report.
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