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.
Our first post this week presented overall findings from a survey conducted on communication between staff and elected officials regarding water utility finances. As many would assume, a solid working relationship between the two parties is important to achieving a rate increase that provides full-cost recovery. But, when hearing a rate case, what information matters most to elected officials?
The survey asked elected officials what kind of information is the most important in helping them make the best decision about a rate increase for the water utility. It also asked administrators what they believed to be the most important information to share with elected officials. This allowed a comparison to be made between elected officials’ and administrators’ responses.