King County charges new customers to the wastewater treatment system with a capacity charge of over $10,000. This revenue is intended to pay for the costs necessary to expand the system, which could total more than $3 billion through 2030. The capacity charge raised over $60 million in 2015, and is projected to collect twice that amount in 2030. Each year the proposed capacity charge amount is based on a highly-sophisticated computer model that is not widely understood. Any errors in this model could potentially shift the responsibility to pay hundreds of millions of dollars between new and existing customers. This audit reviewed the logic and calculations of the model to ensure that its outputs are consistent with county policies.

The capacity charge model is very complex, and this complexity means that it lacks transparency to stakeholders, its accuracy cannot be independently verified, and it is susceptible to errors. The Auditor’s Office discovered errors that would have shifted over $137 million in growth costs from new to existing customers had they not been resolved. The Auditor’s Office also noted methodology choices, which appear contrary to the intent of Council-enacted policies that shift over $100 million in growth costs between existing and new customers. Furthermore, we found the financial policies governing the calculation of the capacity charge contain ambiguous sections that are potentially contradictory and might contain drafting errors.

We recommend that the Wastewater Treatment Division develop a simpler and more transparent approach to calculating the capacity charge, which would also allow for independent and periodic review. The division should work with Council and other stakeholders to align its methodology with the Council-enacted financial policies, and these policies should be modified to provide clear guidance to the division.

Click on the image(s) below to view related reports.