Utility Rate Structure
Long range planning ensures sustainable utility service
Can your existing rate structure within the water & sewer fund support your current construction projects? How much is your system-wide water loss costing your fund and the average consumer? Is your water & sewer fund suffering from negative working capital?
If you’re faced with questions like these, you are probably faced with yet another question. Can you ensure the stakeholders in your community that the water & sewer fund can repay the money it borrows from the general fund?
Adequate revenue; sustainable service
Because collection, treatment, storage, and distribution of water are essential to every community, it is important that the provider of these services establish fee structures that will provide adequate revenue and cash flow to sustain dependable, quality service.
But what should that fee structure be? The answer is complex and requires using a methodical, business-like approach that takes into consideration many variables including current and future operations, demand, anticipated maintenance, capital requirements, and debt service commitments.
Depending on best practices for guidance
You also will have to decide how much your water & sewer operation should hold in reserve. You need to have adequate funds to help smooth out rates so they don’t swing wildly to meet capital improvements and unexpected repairs. On the other hand, building up unnecessary reserves can invite criticism. There is no standard formula to calculate an absolute number. However experience has taught our government consultants best practices and items to take into consideration.
As they help you make decisions on your level of reserves and other factors in developing a long range plan, they will focus on “working capital” to ensure that you will have adequate funds on hand for operations, acquisitions, debt service, as well as a prudent level of reserves.
A decision making tool
To help you make informed decisions on your water & sewer rates now and into the future, our consultants have developed an electronic, Excel-based, long-term financial model. They will customize the model to fit the specific needs of your community and help you learn to use it as a decision making tool.
It is a “living, breathing” tool that you can update as factors change. It will help you understand the ramifications of your decisions over time, and it will give you the data you need to explain the reasons for your decisions to your water & sewer customers.