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APR 494 compliance with legal authorities conservation compliance with appropriate customer contracts understandability simplicity in updating avoidance of discriminatory rate relationships - implementation. Mr. Raftelis explained how the water and sewer costs are identified and broken down between operating costs and capital costs, noting that capital costs are one time construction costs while operating costs cover such recur- ring expenses as cost of electricity, salaries, etc. The next step is to allocate those costs to various charges to recover them. Specific services have been identified, i.e., water service connection, sewer service connection, service call, meter testing, fire protection, etc.; these costs typically are equal to all customers, and charges are recommended for providing just those services. After these costs are removed, it then becomes necessary to recover the rest through the monthly service charges. He went on to explain that in sewer operations and water operations there is a fixed portion and a variable portion. The fixed portion is charged whether you use any water or not. The second kind of costs are availability costs which recover primarily capital costs - i.e., loan payments to FmHA - and he noted that the utility has to pay that charge no matter whether the customers use anything or not. The only difference between,the availability costs and the account costs that are recovered is in the way they are allocated to customers. Account costs (costs for billing, collection, meter reading, etc.) are allocated to each customer equally no matter what size meter or single or multi family unit. The capital costs do vary and what has been developed is a concept of equivalent residential units, referred to as an 'ERU. An ERU represents what an average residential customer is expected to use of water and sewer service. A single 5 BOOK 6 PAGE U2 O