Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Fact Sheet UTILITY FINANCE Revenue Traditional and New Sources of Water Revenue Quick Facts • Water utilities need adequate revenue to achieve their missions • New revenue sources can also improve customer satisfaction • Conservation can be an effective method for increasing water supply • Water affordability programs help ensure water services are available to low-income customers Overview • used to promote water conservation. resent the majority of a utility’s revenue. Water utilities need revenues to meet their mission of providing safe, Increasing block rate. The price of water goes up as the amount used increases. This rate is often Rates and fees associated with water sales typically rep• Uniform rate. Customers are charged a constant reliable, and high-quality water. Revenues also ensure that price per gallon, regardless of the amount of water a water utility can cover its expenses, which can include used. debt service, capital improvements, personnel costs, energy, chemicals, and operations and maintenance. Rate Structures and Water Bills The four most common types of utility rate structures are: • Decreasing block rate. The price of water declines as the amount used increases (AWWA 2000). Water charges are specific to each utility and can differ by region. In a 2014 American Water Works Association (AWWA) rate survey, the median water bill was $34.72 in the Northeast, $30.35 in the Midwest, $44.76 in the South, • Flat rate. Customers pay the same total amount and $31.64 in the West (AWWA 2015). each billing period, regardless of the quantity of water used. Water bills have increased in recent years because of increasing costs associated with providing water service and the need to fully recover those costs. Between 2012 waterrf.org and 2014, the average consumer’s $50.00 Drinking Water monthly bill increased 9.5% and 9.7% for water and wastewater, respectively (AWWA 2015). Wastewater $45.00 $40.32 $40.00 Water Affordability Programs As water rates continue to rise, lower-income customers may have difficulty paying their water bills. In fact, affordability is typically an issue for water bills that approach or exceed 4.5% (2.5% for water, plus 2% for wastewater services and combined sewer overflow controls) of median household income (Stratus Consulting 2013). $35.00 $44.76 $36.23 $34.72 $30.35 $30.00 $31.88 $32.81 $31.64 $25.00 $20.00 $15.00 $10.00 $5.00 To address these affordability issues, water utilities have developed customer assistance programs to ensure that necessary water services remain available to those who cannot afford them. Affordability programs can $0.00 Northeast Midwest South West Reprinted from 2014 Water and Wastewater Rate Survey by permission. Copyright © 2015 the American Water Works Association Figure 1. Median monthly charges for 7,480 gallons by geographic group include a variety of fixed or variable discounts and credits, as well as spe- Water utility expenses can include: cifically tailored (or “lifeline”) rates (Cromwell et al. 2010). Revenues and Expenses • Debt service • Infrastructure renewal programs • Capital improvements • Operations and maintenance There are two categories of water utility revenues • Power and chemicals and expenses, fixed and variable. Fixed revenues and • Purchased water expenses do not change with the volume of water pro- • Regulatory compliance duced, while variable revenues and expenses change in • Personnel costs direct relationship to the volume of water produced. • Other miscellaneous fees or programs Revenue sources for a water utility often include: • Water supply fees • Volumetric water rate charges • Interest income • Non-operating income (e.g., property leases or contracting services) • 2 | Other miscellaneous fees and charges Utility Finance • Revenue Revenue and Customer Service A number of utilities are exploring additional business lines that are beyond the core mission of reliable drinking water delivery. New services can generate additional revenue and can also improve customer satisfaction. These opportunities leverage assets already owned by the water utility and develop other assets to take advantage of the utility’s core functions (Raucher et al. 2011). Revenue ideas • • • • • Real estate sales/leasing Plumbing-related services Contracted lab services Advertising on water towers Service line insurance policies Utilities must remain flexible and innovative to ensure financial stability and to continue to provide safe, reliable, and high-quality water to customers at an affordable price. Conservation References Many water utilities struggle with revenue decreases brought about by water conservation due to increasing AWWA (American Water Works Association). 2000. M1 use of water-efficient appliances and fixtures, as well as Principles of Water Rates, Fees, and Charges. 5th ed. through water utilities’ own conservation programs. Cost Denver, Colo.: AWWA. savings can be achieved through forestalling capacity expansion and reducing energy and chemical costs. While AWWA (American Water Works Association) and Raftelis (Raftelis Financial Consultants, Inc.). 2015. 2014 Water conservation tends to reduce water sales and revenue in and Wastewater Rate Survey. Denver, Colo.: AWWA the short term, overall it can be an effective method for and Charlotte, NC: Raftelis Financial Consultants, Inc. increasing water supply. http://www.awwa.org/portals/0/files/publications/ documents/2014waterandwastewaterratesurveyre- Common conservation-based strategies include: visedmarch.pdf. Cromwell III, J. E., R. D. Colton, S. J. Rubin, J. Mobley, K. • • Increasing block rates. This is a commonly Reinhardt, R. Wilson, and C. N. Herrick. 2010. Best employed rate structure that sends a conserva- Practices in Customer Payment Assistance Programs. tion-oriented price signal. Project #4004. Denver, Colo.: Water Research Water budgets. Each customer will have a different Foundation. budget based on their specific water use character• and B. McLoughlin. 2011. Expanding Water Utility Drought pricing. This strategy can include various Services Beyond Water Supply to Improve Customer surcharges or rate increases that are only instituted Satisfaction and Utility Effectiveness. Project #4171. during droughts. • Raucher, R., J. Clements, J. Oxenford, K. Raucher, istics (landscape, household size, etc.). Seasonal rates. Such rates establish a higher Denver, Colo.: Water Research Foundation. Stratus Consulting. 2013. Affordability Assessment Tool price for water consumed during a utility’s peak for Federal Water Mandates. Washington, D.C.: U.S. demand, as a means to curtail consumption during Conference of Mayors; Denver, Colo.: American Water that period. Works Association; Alexandria, Va.: Water Environment Federation. https://usmayors.org/urbanwater/ Rate Regulation and Legal Considerations media/2013/0529-report-WaterAffordability.pdf. Water utilities’ rates and fees are regulated by a governing body. Although private utility rates are regulated by a utility commission, public entities are regulated by a board or council. Regardless of how a utility is regulated, it must develop a rate-setting strategy that is lawful, just, and reasonable in order to stand up to legal challenges. Last updated June 2017 Utility Finance • Revenue | 3