What Is a “Minimum Charge?”
Given we’ve shared that a general improvement district’s (“GID’s”) Board of Trustees’ (“Board’s”) power to “fix, and from time to time increase or decrease…rates, tolls or charges other than special assessments” flows from NRS 318.197(1), and that this NRS instructs those exactments may “includ(e)…minimum charges,” here we examine what are “minimum charges?” And whether they legitimately pay the costs the District incurs to furnish recreation services or facilities. Although NRS 318.197 expressly uses the words “minimum charge,” nowhere is the term defined. So we’re relegated to searching elsewhere. And here’s what we’ve discovered.
“A minimum charge is the lowest amount a customer is required to pay for a service or product (as opposed to facility), even if (he/she) use(s) less than the full amount. Essentially, it’s a base fee that ensures a provider receives a certain level of revenue regardless of…actual usage or quantity consumed.” By way of example, “a restaurant might have a minimum charge per person for dining.” Insofar as freight shipment is concerned, a minimum charge “is the minimum amount…a carrier or service provider will charge for transporting a shipment (i.e., a service), irrespective of its size or weight, ensuring a base level of revenue to cover operational costs.”1 Insofar as utility charges are concerned, a minimum charge is “a provision in a rate schedule maintaining charges for service at a certain specified level regardless of use (i.e., it ensures that customers’ bills do not fall below a certain amount, even if little or no energy is consumed).”2 Insofar as finance charge jargon is concerned, “you will be charged a minimum finance charge if the calculated amount of your finance charge is less than the minimum finance charge set by your credit card company for a billing cycle. For example, your finance charge may be calculated to be $0.35 but if the company’s minimum…charge is $0.50, you’ll pay $0.50….Not to be confused with minimum payment.”3
In all of these examples, the “minimum charge” is equivalent to base fee a provider receives regardless of the amount of service or product provided. The customer oftentimes pays more depending upon the amount (i.e., consumption) of service or product provided. An example of this principle can been gleaned from the District’s utility bills. “Water and sewer rates are…made up of three main components – “Fixed (or)…ready to serve…charges, variable (or consumption) charges, and capital improvement charges…
Fixed charges represent “a certain level of costs that are incurred to staff, operate, and maintain (the District’s) system prior to delivering any water or treating any wastewater (i.e., services)…The(y)…are calculated as a percentage of…budget components to determine the fixed charges of operating the water and sewer system.”4
Variable “charges are the costs (the District incurs) to treat and distribute water, and to collect, treat, and dispose of wastewater…For water (these are) essentially the cost(s) to pump it out of Lake Tahoe, treat the water, and deliver it to the customer. (For)…sewer (it) is essentially what it costs to collect the wastewater and deliver it to the wastewater plant, treat the wastewater, pump, and dispose of the effluent and biosolids. This requires staff, chemicals, supplies, tools, equipment, and energy to perform these services.” Rather than a minimum charge, these services are charged based upon consumption, in 1,000 gallon “units.”4
“Capital Improvement Charge(s) fund…the replacement of water and sewer infrastructure. (They are)…based on funding the costs of the five-year capital improvement plan with consideration for the multi-year capital plan.”4
In this specific District example, the fixed or ready to serve component of the District’s utility rates is a “minimum charge.” It is a base fee the District receives regardless of the amount of service or product provided (i.e., consumption).
And now you know!