This is the second in a series of five papers on system development charges. Front end contributions to recover nonlocal facility costs are generally administered by utilities as a separately structured capital recovery fee, termed variously as a impact fee, facility charge, plant investment fee, or availability fee. The term system development charge is used for all of these terms. While there are no universally accepted rules that will guarantee litigation-free system development charges, a few rules of good practice will help protect the utility. Those rules are: proper authorization under existing law; uniformity of application; control and disposition of fee proceeds to the benefit or properties charged; and charges based on defined facilities and costs fairly apportioned in accordance with anticipated needs of properties charged. There is no single established method for determining system development charges, there are two common approaches. The first is system buy-in, in which capital recovery fees are designed to derive from the new customer an amount per connection equal to the equity in the system attributable to existing customers. The second method is the incremental cost approach, in which capital recovery fees are designed to recover from the new customer the incremental cost of system expansion associated with customer growth. Detailed examples of each method are given.