Mary Tiger is the Chief Operating Officer of the Environmental Finance Center.
We have written about a number of alternative rate designs for water utilities on this blog in the past year (see posts on PeakSet Base Model and CustomerSelect Rate Plan). Admittedly, we have a lot of fun at the EFC thinking through creative models, linking those models to utilities’ underlying cost structures, and testing out the ramifications on utility finance, customer demand and affordability. But in practice most governing boards and utility managers are hesitant to blaze a trail, especially on an initiative that significantly alters the way revenue is earned. In a Peer2Peer virtual exchange in December, we asked eighteen utility officials what hurdles would need to be cleared before moving forward with an overhaul to their utilities’ pricing model. Their responses communicated the challenging, but not insurmountable, process of transforming a utility’s business practices.
Jeff Hughes is the Director of the Environmental Finance Center.
“How much should our utility maintain in reserves?” This is one of the most common questions I get from utility managers during my finance courses. It is also one of the most difficult questions to answer. Just calculating how much a utility has in reserve and what it can be used for can be challenging given the diversity of labels and descriptions given to reserves.
Guest author Peiffer Brandt is the Chief Operating Officer at Raftelis Financial Consultants.
“New Orleans Sewerage & Water Board customers will see their monthly water and sewer rates more than double by 2020 after the City Council voted 5-2 Thursday to implement rate hikes on Jan. 1. Rates will jump 10 percent every year for the next eight years …” so began a December 6th Times Picayune article.
Shadi Eskaf is a senior project director for the Environmental Finance Center at the University of North Carolina at Chapel Hill.
“What is the [national/state/recommended] threshold of affordable rates? Is it 2.5 percent MHI?”
If I had a dollar for every time I get asked this question, I don’t think I’d have to worry about affording my own water and wastewater bill. Percent MHI has become a popular indicator for utilities, agencies, and organizations across the country, and even we use it in our Rates Dashboards. Although different groups have their own unique interpretation of the resulting value, the calculation is relatively standard. One of the two variables needed to calculate this indicator—the Median Household Income (MHI)—is usually obtained from the U.S. Census Bureau and taken on face value. Digging deeper into this variable, however, reveals that it is not as simple as most people consider it to be. Using the Census Bureau’s MHI as-is automatically builds in important qualifications into the percent MHI indicator that could significantly affect the interpretation of its value.
Guest Author Rocky Craley is a Senior Consultant at Raftelis Financial Consultants.
Breaking News: Utility rates have continued to increase over the last two years, according to the 2012 Water and Wastewater Rate Survey. That’s the highest-level survey summary, which is (admittedly) not very groundbreaking. But digging into the national rate survey provides a little more information than that – actually, quite a bit more. Surveys such as this provide insights into the water and wastewater industry that enable utility executives, staff and other industry professionals to benchmark rates and key utility metrics against peer utilities. Utilities also use survey data as supplemental information to convey the state of the industry and effectively educate decision makers.