What happens if a water utility collects less in revenues than it pays in expenditures in one year? It will raise some alarms, but some utilities might be able to weather that shortfall by dipping into their reserves and bounce back the following year. But what happens if a water utility collects less in revenues than it pays in expenditures in three consecutive years? That is probably a strong indication that the rates it is charging its customers are too low. Assuming that expenses cannot be significantly reduced, a rate increase is almost certainly necessary. So are utilities in this position raising rates the following year, or are there obstacles that may be chronically preventing the adoption of rate increases? In this post, I analyze ten years of financial and rates data from hundreds of North Carolina utilities to explore this question.
Here at the Environmental Finance Center, we work with water systems across the country to help them improve their financial and managerial capacity. While there are many reasons why it is important for water systems to have sound management and financial practices, one very important reason is that it can help water systems meet regulatory requirements. Two years ago, my colleague Shadi Eskaf looked at how financial difficulties affect the probability that a water system receives a health violation. This post explores a few other interesting trends in water violations using EPA data from July 1, 2015 to June 30, 2016. To give some context, there were 69,934 violations during this time period—which were committed by 24,725 systems. We compared these violations against EPA’s database of 147,413 publicly regulated drinking water systems.
What is WIFIA? WIFIA stands for the Water Infrastructure Finance and Innovation Act, the name of the federal act that authorized an interesting new federally managed water and wastewater infrastructure funding mechanism. WIFIA includes both direct loans and a new credit enhancement/guarantee mechanism (more on WIFIA guarantees in a future blog post). The WIFIA program was first created in 2014, but its funding appropriation and program guidance was not completed until the end of 2016. The US Environmental Protection Agency (EPA) announced the Notice of Funding Availability for WIFIA on January 10th, 2017. Borrowers interested in taking out a loan with this year’s funds have until April 10th, 2017 to submit letters of interest that will be considered by EPA.
Last month, as part of our Smart Management for Small Water Systems project, I traveled with Glenn Barnes, Senior Project Director at the Environmental Finance Center at UNC Chapel Hill, to visit a small water system that is in quite a financial bind. The system, which has the highest rates in its state, needs an estimated $5 million in infrastructure updates, including a new water tower, upgrades to piping, and treatment facility repairs. With a population of only 900 people in the rural town, revenues are not high enough to cover the cost of repairs. And with some members of the community already paying almost 20% of their monthly income to their water bill, raising already high rates is not an option. This situation is by no means unique, and in fact, is very common to small systems across the country. As water infrastructure ages, many utilities are asking the same questions: how did we get into this situation, and now that we’re here, how do we pay for expensive repairs for our aging infrastructure?
A customer calls and wants to know the water and sewer rates in his town. What do you say? Do you direct him to your website? Tell him to swing by town hall or your office and pick up a pamphlet? Can you describe your rates quickly over the phone?
Keeping customers informed of the most up-to-date water and sewer rates keeps all parties on the same page. While there is much more to communication between utilities and their customers than only rate sheets themselves, making this information readily available in the form of readable and intuitive rate sheets is a step in the right direction. At the EFC we see a lot of rate sheets, through our work in the Smart Management for Small Water Systems project, various surveys for statewide water and wastewater rates dashboards, and other work. The rate sheets we have seen run the gamut, from clear and concise, to convoluted and labyrinthine, to essentially non-existent. This post summarizes four best practices for creating a good utility rate sheet that we have learned over the years.