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Environmental Loans (EL) User Charge System (UCS) and Sewer Use Ordinance (SUO)

A municipality receiving financial assistance from the Clean Water Fund Program (CWFP) must adopt and maintain a User Charge System (UCS) meeting the requirements of ch. NR 162, Wis. Admin. Code. The UCS must proportionally distribute the costs of operations and maintenance among users and must generate sufficient revenue to cover all the costs of its sewerage system. In addition, a municipality must adopt and maintain a Sewer Use Ordinance (SUO) for its sewerage system.

User Charge System (UCS)

A user charge system (UCS) is a written description of the methodology by which a municipality will recover the costs of building, operating and maintaining the sewerage system. Under the CWFP, user charge systems are required for all wastewater facilities and any urban stormwater facilities financed by revenue bonds. A UCS typically identifies the costs of operation and maintenance (including the equipment replacement fund), revenue bond debt service, and specifies the methods for charging these costs to users. The UCS must be incorporated into a sewer use ordinance (SUO) or other municipal ordinance.

UCS requirements

Each user charge system must do all of the following:

  • Proportionally distribute the costs of operation and maintenance among the users or user classes.
  • Insure sufficient revenues are generated to pay for all costs of the system including operation & maintenance, annual equipment replacement fund deposits, debt service on revenue bonds and debt coverage on revenue bonds.
  • Require the establishment and funding of an equipment replacement fund (ERF).
  • Establish a financial management system.
  • Require a review of the user charge system every two (2) years.
  • Require that any discharger of toxic waste pay for the treatment of that waste.

NOTE: A municipality with joint sewer and water utilities under jurisdiction of the Public Service Commission of Wisconsin (PSC) must get PSC approval of the user charge system.

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Types of user charge systems

There are a number of different models of user charge systems. Any of these models can be used as long as the UCS meets the requirements listed above.

The user charge usually has two components:

  • a charge for debt service for capital costs; and
  • a charge for cost of operating and maintaining the sewerage system.

A typical user charge system will impose a fixed charge to recover the capital costs for construction of the sewerage system, and an operation/maintenance charge (or volume charge) to recover the cost of treating the wastewater.

In metered municipalities, the fixed charge is often based on the size of the water supply pipe, and the volume charge is based on the amount of water used.

In communities without meters, charges are generally on a per Residential Equivalent Unit (REU) basis. One REU is intended to represent the equivalent of a single family residence. Commercial, institutional and other residential facilities are assigned REUs based on the expected flows from each type of facility.

Typical flows from various types of facilities are provided in ch. SPS 383 Appendix, Wis. Adm. Code, Private Onsite Wastewater Treatment Systems [exit DNR] or from the Department of Safety and Professional Services (DSPS) [exit DNR].

Utility revenues

Revenues of the sewer utility or stormwater utility must be sufficient to cover all of the expenses of the utility. Utility revenues are typically generated from sources that include:

  • user fees
  • earnings on utility investments
  • special assessments
  • miscellaneous revenues

If a revenue bond is issued to fund a capital project, the revenue bond will normally include a debt coverage requirement ranging from 110% to 125%. In general terms, this means that the annual utility revenues remaining after paying utility operating expenses need to be equal or greater than 110% to 125% of the annual revenue bond debt service paid by the utility.

If the debt coverage requirement cannot be met, then the utility must consider raising its user charges to a level that will meet the debt coverage requirement. On a temporary basis, the municipality may need to transfer money into the utility in order to meet the annual debt coverage requirement.

The minimum debt coverage requirement for revenue bonds issued/sold to the CWFP is 110%. However, if the municipality has other utility revenue bonds outstanding with a higher debt coverage requirement (say 125%) then the debt coverage requirement for the bonds sold to the CWFP will also be 125%.

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Sewer Use Ordinance (SUO)

Loan recipients are required to implement the user charge system (USC) with a municipal ordinance. For wastewater projects, this ordinance is called a sewer use ordinance (SUO). In addition to implementing the UCS, the SUO establishes the requirements for using the sewerage system.

Typically, the sewer use ordinance defines the types of wastes that can be discharged into the sewerage system, imposes requirements on industrial waste dischargers, establishes requirements for hooking into the sewerage system, and provides enforcement mechanisms.

Ordinance adoption requirements

The following are specific Wisconsin Statutes governing the ordinance adoption process:

  • s. 61.50, Wis. Stats. - Village
  • s. 62.11, Wis. Stats. - City
  • s. 59.14, Wis. Stats. - County
  • s. 60.80, Wis. Stats. - Town
  • s. 60.77, Wis. Stats. - Town Sanitary District
  • s. 66.0827, Wis. Stats. - Town Utility District
  • s. 33.22, Wis. Stats. - Inland Lake Protection and Rehabilitation District

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UCS/SUO timeline

  • Update UCS/SUO when preparing plans and specifications.
  • DNR/Department of Administration (DOA) reviews the user charge system information in the applicaton to determine if revenues will be sufficient.
  • Public notice and publish the sewer use ordinance.
  • Adopt the UCS/SUO before the Financial Assistance Agreement (FAA) is signed.
  • Review the UCS/SUO at least every two years as required in ch. NR 162, Wis. Adm. Code.

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UCS & ordinance requirements for storm water projects

Storm water projects have slightly different requirements for a user charge system and related ordinances. A UCS is only required for stormwater projects that either: 1) receive a loan collateralized by a utility Revenue pledge; or 2) require an intermunicipal agreement. Projects supported by a municipality General Obligation pledge (and not part of an intermunicipal agreement) are not required to submit a user charge system.

Contact information
Direct questions about User Charge Systems (UCS) and Sewer Use Ordinance (SUO) to:
Dave Calhoon

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Last revised: Thursday June 29 2017