In setting goals for the LOS, the initial starting point is defined by the utility's regulatory requirements at the federal, state, and local level. The federal regulations are generally specified in the Safe Drinking Water Act and Clean Water Act. The State of Kansas Department of Health and the Environment (KDHE) has adopted and administers these regulations. In addition, KDHE has its own regulations that go beyond these acts. At the local level, counties, cities or utility boards may adopt ordinances or other types of regulations that they want the utility to follow.

Because there are many regulations, it is not necessary for the utility to list compliance with each and every regulation on its LOS Agreement. Rather, a broad statement such as "the utility will comply with all applicable state, local and federal regulations" should suffice. Alternatively, the Agreement may include statements that describe categories of compliance such as, "will conform to all water quality requirements," "will conform to all operator certification requirements," or "will meet all requirements of the open meetings act." In this case, the LOS Agreement may also need a summary statement to the effect that "the utility will conform to all other applicable federal, state and local regulations" to ensure that nothing has been omitted. The next aspect the utility must consider is the fact that assets have physical limitations. Assets can not deliver services beyond these limitations. For example, if a water utility wishes to include the provision of fire flow in its LOS Agreement, but it has only 2 and 4 inch lines with no fire hydrants, it is not possible to provide fire flow. You may include the provision of fire flow in your long-range Capital Improvement Plan and seek funding, but until the assets for fire flow are in place, fire flow provision should not be included in the LOS Agreement.

The regulatory requirements and physical capabilities provide boundaries for the LOS. In between these boundaries, the utility will specify the internal and external goals of the utility. The utility should keep the LOS Agreement very simple, especially at the beginning. As an initial starting point, the Agreement should contain 8 to 12 items of importance to the customers and the utility. As the utility progresses in Asset Management, it may be desirable to add to the Agreement, but starting simple is best.