This paper is one of five papers on system development charges (SDCs). This term is used to mean front end contributions to recover nonlocal facility costs, variously referred to as capital recovery fee, impact fee, facility charge, plant investment fee, or availability fee. The term system development charge is used for all of these terms. This paper explores issues related to threshold questions of authority. It also sets forth the principles generally applicable to impact fees, in anticipation that system development charges will be evaluated under such principles. Trends in state legislation authorizing utilities to collect system development fees and requirements of those laws are given. The author also discusses the typical legal requirements of SDCs as they relate to capital improvements plan and impact fee methodology, fee calculations, delineation of service areas, collection of fees, earmarked accounts, expenditure of fees, refund requirements, and credits. In the absence of statutes that provide guidelines for establishing SDCs, utilities may use legal requirements established by the courts, such as the Rational Nexus test, the Reasonable Relationship test, and the Specifically and Uniquely Attributable test. Given the trend of state legislatures enacting laws that both allow and control SDCs, utilities should monitor legislative initiatives closely.