Utility connection fees, capacity charges and will-serve letters

Every project pays two utility stacks. The wet stack — water, sewer, sometimes storm — is public-agency territory: connection fees and capacity charges governed by Gov. Code § 66013, archived inside the Mitigation Fee Act document, which caps them at the estimated reasonable cost of providing the service unless voters approved more. The dry stack — gas and electric — belongs to investor-owned utilities, where PG&E's Greenbook dictates service design, clearances, transformer pads and metering, and where schedule risk is measured in equipment lead times rather than hearing dates.

The two stacks fail differently. Fee exposure is legal and boundable: § 66013's cost-of-service cap, separate-fund accounting and audit rights, plus the SB 330 freeze on fee schedules. Capacity exposure is physical: a will-serve letter that expires, a main extension nobody priced, a transformer more than a year out. Underwrite both.

Section 66013 separates utility charges from impact fees: a connection fee covers the physical hookup; a capacity charge buys into existing or future system capacity. Neither may exceed the estimated reasonable cost of providing the service unless the excess was approved by the voters. Capacity-charge revenues must be kept in separately accounted funds, and the statute preserves audit rights to test the charge against its cost basis — the utility-side analogue of a nexus study.

Challenges follow the fee-protest framework with a wrinkle: facial attacks on the ordinance or resolution adopting a § 66013 charge run on the short 120-day clock, while as-applied disputes travel the Act's pay-under-protest machinery — the fee-protest guide covers the deadlines.

• Underwriting watch-outs:
• Most agencies tier capacity charges by meter size, and meter size follows fixture-unit demand under the California Plumbing Code — an oversized meter buys capacity you never use. Run the calc before accepting the default.
• Ask for the cost-of-service study behind the charge, the same way you would pull a nexus study for an impact fee.
• Special-district charges — water or sanitation districts separate from the city — are set by boards your entitlement never touches; track their rate hearings separately.

A will-serve letter from the water and sewer providers is the standard evidence — for lenders, for the city, sometimes for environmental review — that capacity exists for your project. Read it as a conditional instrument: it commits to serve subject to paying the charges in effect at connection, constructing required main extensions or upsizing, and completing within a stated validity period. It is not a vested right, and it does not lock the fee.

The main-extension condition is where budgets break. If the nearest adequate main is a block away, the letter will cheerfully condition service on your extending it — price the offsite work when you price the site, not when improvement plans come back.

• Underwriting watch-outs:
• Match the letter's validity window to the construction schedule and calendar the renewal — an expired will-serve resets you to then-current rules.
• Capacity charges are typically collected at connection at then-current rates; escalation between application and permit is a real gap on multi-year entitlements.
• Storm connections and recycled-water conditions ride along in some districts — read the standard conditions, not just the capacity paragraph.

Gas and electric service is tariff-land. The Greenbook is PG&E's binding manual for service design — transformer locations and clearances, switchgear and metering rooms, trench and conduit standards, easement requirements — and distribution or service extensions run under the utility's line- and service-extension rules (the Rule 15 and Rule 16 allowances familiar from PG&E practice), which set what the utility funds versus what the applicant advances.

Freeze the dry-utility design early. Greenbook clearance and access requirements move site plans — a transformer pad that migrates after entitlement can cost parking stalls or a lobby — and the equipment itself is the schedule risk: in hot markets, transformers and switchgear quote at 12+ months. File the utility application at design development, not at permit, and fold the answers into the entitlement audit.

• Underwriting watch-outs:
• Transformer lead times (12+ months in hot markets) now set critical path on mid-rise projects — release long-lead equipment at design freeze, and remember the utility's own engineering queue runs months before the factory clock even starts.
• Extension allowances offset but rarely cover the full cost of infill main extensions — model the applicant-financed share instead of assuming the tariff pays.
• All-electric designs and EV loads can push the service up a size class — confirm whether the larger service changes the transformer and switchgear before locking the pro forma.
• SB 330's freeze reaches the fee schedules of the jurisdiction processing your application — an investor-owned utility tariff or an independent district's capacity charge sits outside it.