Dale Barrie Training & Technical Assistance Specialist · sewer systems at points of direct...

Iowa Rural Water Association - Dale Barrie 1

Dale BarrieTraining & Technical Assistance Specialist

Goals for rates

Type of rate structure – which is best for you

Who should be involved

What information do you need

Steps to develop rates

Other fees to consider


To compare my utility’s rate with those of other systems and set my rates so they are one of the lowest in the state.

Rate study? Our rates have been fine for the last 25 years, why do they need changed?

Water’s free right? It just comes out of the ground. Why should it cost very much?

Wastewater flows down hill – what else do you need to know?


To provide adequate revenues to cover both expected and unexpected costs for a water or waste water system.

Every utility needs to set rates based on their specific needs & situations


To provide adequate service to all customers:Safe and aesthetic potable water at the tap

Wastewater discharge which is fully treated & meets all regulations


A utility must receive sufficient revenue to ensure proper operation and maintenance, provide for development & preservation of their current and future assets.

In order to maintain a utility's financial integrity, revenues must exceed expenditures by an amount needed to adequately cover normal O&M, fund reserve/capitol/debt accounts for both expected and unexpected expenses.


They must at least meet expenses

Are fair and equitable to customers

Most businesses determine prices on what the market can maintain. Utility’s must temper profitability with community and environmental concerns.

You should be able to justify your rates and fees.


Infrastructure deteriorationHigh cost of repairs and replacement

Out of site – out of mind

Political pressuresCooperation with different groups

Socio-economicFixed income customers

Commercial & industrial

Can water still be fair and equitably priced?


StaffTime

Pressure to “hold the line”

Council or Board & Public (C.A.V.E.)Adverse to change

No one likes increases


Every 20 years or so…..

When we have a big project approaching and we need to borrow funds…..

Never… if we set them right the first time, they’re good…..

Not while I’m on the council/board


• Cost of a new home - $123K to $290K

• Car - $16K to $32K

• Gallon of gas - $1.34 to $3.80 (2016 $2.15)

• Loaf of bread - $0.70 to $1.98

• Pound of hamburger - $0.89 to $4.68

Why should water and wastewater rates be any different??


Annually

Adjust when needed

Keep up with rising costs

Adequate funding of reserve and capitol accounts for future/emergency needs


Flat fee

Uniform

Decreasing block (development)

Increasing block (conservation)

Base Plus (combination)

ResidentialCommercialIndustrialGovernmentalWholesale


Charges each customer within a user category the same bill regardless of usage.

Someone who uses 1,000 gallons per month pays the same as someone who uses 10,000 gallons per month.

May be based on number of persons in the household.


PROS CONS

Easy – everyone pays the same amount

Meters not neededNo meter reading or maintenance

Billing software

No need for customer classes

Easy to adjust

Fair? – Small users subsidize larger usersHigher per capita usageNo conservationWater loss can be an issue


For very small systems with little or no commercial or industrial customers

Disadvantages may well outweigh any perceived advantages


Charges each customer within a user category the same cost per unit (usually 1,000 gallons) regardless the amount used.

If the unit charge is $2.50 per 1,000 gallons, a customer which uses 1,000 gallons is charged $2.50 and a customer which uses 10,000 gallons is charged $25.00.


PROS CONS

Simple

Equitable

Easy to implement

Easy to explain and justify

Easy to adjust

No benefit for high volume usersRequires metering/billing & associated costs Revenues base solely on sales


Charge each customer within a user category a lower rate per 1,000 gallons for customers who use more water.

First 5,000 gallons cost $5.00 per thousand and all over 5,000 gallons cost $2.50 per thousand.

Customer using 1,000 gallons pays $5.00 – customer using 10,000 gallons pays $37.50 ($5.00 vs $3.75 per thousand)


PROS CONS

Encourages high volume users (commercial/industrial)

Properly designed should have stable revenue

Can be complexCan be perceived as inequitable to smaller volume usersHarder to explain/justifyHarder to implementDoesn’t encourage conservation


Charges each customer within a user category and increasingly higher rate per unit based on the amount of water used.

$3.00 per 1,000 gallons for the first 5,000 gallons and $5.00 per 1,000 gallons for all over 5,000 gallons

Customer which uses 1,000 gallons pays $3.00 and a customer which uses 10,000 gallons pays $40.00 ($3/thousand vs $4.00 per thousand)


PROS CONS

Encourages conservationCan delay or reduce the need for capital improvements Good structure when supplies are limited

Can provide unstable revenuesStructure unfair to large volume usersComplex – multi-tieredHarder to explain/justifyHarder to implement


Determines an equal base charge per customer (does not include any water use) based on fixed costs

fixed costsO&MDebtReserves

Calculates the cost to produce & deliver each gallon to the customer based on variable costs

Variable costsO&MProduction


PROS CONS

Easy to designEasy to implementEasy to explain & justify

Capitol cost spread evenly, may be perceived as unfair to small customers


Each rate type has its strength and weaknesses

How was the current rate structure determined originally?Why?

Do these reasons still apply?

Is there a type that better suits the current needs?


Is it easy………to develop and implement?to understand by staff, decision makers & customers?to make adjustments to?

Are they fair?Can you justify them


ReviewSimple & quick

Minimal dataExpenses

Revenue

Basic snapshot

Considers little if any planning

An indicator of financial health


Single year of dataMakes some assumptionsMakes some estimates

3-5 years of dataHard dataTime and effortAM/CIP plans in place

Detailed revenue and expenses# of customers (projected growth or decline)

Gallons purchased or treatedGallons of sales

Water loss and I&IDebt (current and planned)

Reserves and reserve fundingEquipment replacement costsCapitol Improvements PlansIowa Rural Water Association - Dale Barrie 29

StaffDecision MakersCustomers


Have the time/willingness toGather the information needed

Put together the needed report

Explain need to decision maker

Customer PR


Tough choices

Short and long term plans

Support staff

Ability to justify decisions to customers


Willingness to listen and understand

Feel increases are justified

Knowledge of current and future needs & plans

C.A.V.E.


ReviewStudy Analysis


Simple & quickMinimal data

Expenses

Revenue

Basic snapshotConsiders little if any planningAn indicator of financial health


Item Water Sewer Data: 7/1/14 to 6/30/15Revenue $ 151,000.00 $ 68,500.00

Total Cash Requirements $ 154,300.00 $ 66,250.00 Goal

RATIO Revenue to Cash Requirements

0.98 1.03 >1.0

Annual Surplus or Shortage $ (3,300.00) $ 2,250.00 surplus

% Surplus or shortage -2% 3% positive

Is sewer ok and do we need to raise water rates by 2%?


• Is data truly reflective of what is happening?

• Is there a reason for the water shortage?• One time expense

• Emergency repair

• Purchase of equipment

• Special project

• Were there reserves to cover the loss?

• Can we expect the sewer utility to continue to operate in the black?


Revenue (less one time only, sales tax, deposits)

Expenses (less one time only, sales tax, deposits) Fixed Variable

Debt (annual principal & interest) Current Future

Reserves (debt, capitol, short term, equipment, emergency)

Plans Short-term Long-term


Single year of dataMakes some assumptionsMakes some estimates

3-5 years of dataHard dataTime and effortAM/CIP plans in place

Detailed revenue and expenses# of customers (projected growth or decline)

Gallons pumped or treatedGallons of sales

Water loss and I&IDebt (current and planned)

Reserves and reserve fundingEquipment replacementCapitol ImprovementsIowa Rural Water Association - Dale Barrie 39

•Water Loss

• Inflow and Infiltration (I&I)

•Asset Management Planning

•Reserves

•Debt


What is your water loss (unaccounted for water use)?

How much I&I do you have?

Why is it important, can it affect rate decisions?


ApparentMeter inaccuracies

Data errors

Unauthorized uses (thefts)

RealLeaks in the distribution system

Joints

Valves & hydrants

Main breaks

Service lines prior to metering


I & I are terms used to describe the ways that groundwater and storm water enter into dedicated sanitary sewer systems.

Inflow is storm water that enters into sanitary sewer systems at points of direct connection to the systems.

Infiltration is groundwater that enters sanitary sewer systems through cracks and/or leaks in the sanitary sewer pipes.


Pay to produce water which is not sold

Costs of treating additional production or flows

Expanding facilities

Damage to distribution & collection systems


WATER LOSS

Greater than 15% = poor

5 to 15% = acceptable

Less than 5% = excellent

Goal should be less than 10%

WASTEWATER INFLOW & INFILTRATION

In a perfect world the flow to the wastewater treatment plant would be less than the amount of water being delivered to your customers.

Estimates range from 85 to 90% of water goes to sewer systems


It is extremely difficult, if not impossible, to operate a water orwastewater utility efficiently on outdated or failing infrastructure andequipment.

What assets do we have?

What are there age and condition?

What level of service do we expect from them?

Through proper management, how do we get the longest life withthe least cost?


• Short and long term planning

• We do it all the time without even thinking of it.

• Applied common sense


• If you are driving your car and you have a flat tire – what do you do?• Fix the tire• Replace the tire• Buy a new car

Easy but…….What factors did you consider?

Cost of repair or new tireValue of the carReliability of the carDid the flat cause other damage?


Needs to be part of the overall plan to allow funding

TypesOperating

Ability to pay the bills

EmergencyUnexpected

DebtRequirement of debtCan’t be used

Short lived assetsCapitol Improvement PlanOther?


Every system needs to have reserves built up to cover expected and unexpected repairs and replacements.

Each system needs to determine the appropriate amount needed in reserves based on emergencies, maintenance & CIP


Current & future principal & interestReserve requirementsIf multiple sources, when will each be paid offRefinancing options?


Begin with a quick review…..

• Indications of Financial Conditions• Revenues vs cash requirements

• Reserves

• Debt

• Water loss and I&I


Planning on needs and developing plans• State of current assets• Level of reserves•Current/future debt•Water loss• I&I


STUDY

• Short term data available

• Asset management and capital improvement plans not in place

• Water loss and I&I may not be known

• Reserves may be ending balance

• Use of best estimates as to needs

ANALYSIS

• Long term data available

• Plans in place• Asset

• capital

• Debt levels known

• Water loss and I&I known

• Reserve funds levels set


• Determine average year of expense/revenue • Remove inconsistent revenue/expense streams

• Sales tax• Deposits• Connection fees• Penalties

• Remove one time only revenue/expenses• Create reserve accounts to cover expenses

• Determine reserve categories & funding needed

• Determine debt needs – current & future

• Asset management/Capital annual needs

• Annual water production and wastewater flows

• Annual metered sales (wastewater based on water usage?)

• Average number of customers

• Expected growth (or decline) in customer base


• Flat fee

•Uniform

•Decreasing block (development)

• Increasing block (conservation)

•Base Plus (combination)


Fixed

Those costs allotted which are not tied to production or sales and are base on the funds needed whether water is sold or wastewater treated.

Variable

Those costs associated with production or treatment and would rise/fall based on the amount of water produced/purchased or wastewater treated.


Fixed Costs - Expenses incurred without salesDebt

Funding of capitol and reserve accounts


BASE RATE - WATER

Calculated Projected

Total Fixed Costs $ 70,332.49 $ 71,750.73

Accounts 760 760

Annual Bill $ 92.54 $ 94.41

Monthly Min. $ 7.71 $ 7.87


Determine units to be usedPer gallon

Cubic foot

Variable costsOperation and Maintenance

Administrative

Accounting and billing


UNIT CHARGE - WATER

Total Variable Costs $ 234,317.38 $ 261,263.87

Sales (gallons) 60,877,985 60,877,985

1,000 gallon units 60,877.99 60,877.99

Unit Charge $ 3.85 $ 4.29


• Review annually• Are you meeting revenue/expense expectations

• Consider built in increases in ordinance• 2-3 years

• Keep plans up to date• Asset management

• Capital Improvements

• Build reserves• Sustainability


How do our rates compare to nearby communities?• Your needs and expenses are yours alone• There maybe very good reasons for having lower or higher

rates!


Affordability Index Ratio Calculation is a standard calculation based on the annual cost of 5,000 gallons of water or wastewater used each month as a percentage of the median household income for your system.

An AIRC of less than 1.0 % is considered to be excellent, 1.0 to 2.0% is considered to be acceptable, 2.0 to 2.5% is poor and higher than 2.5% is considered excessive.



AFFORDABILITY INDEX RATIO - WATER

Current Calculated Projected

5K/month annual cost $ 276.00 $ 323.48 $ 351.90

MHI $ 55,047.00 $ 55,047.00 $ 61,726.90

AIR 0.50% 0.59% 0.57%

Meter by size and replacement costs

Capitol ImprovementGeneral

Specific ProjectSunset?

Others?


Provide adequate revenues to cover both expected and unexpected costs in operating and maintaining a water or waste water system.

Use a rate structure which is easy to develop and implementEasy to understand and explain

Fair and affordable



Dale BarrieTraining [email protected]

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Dale Barrie Training & Technical Assistance Specialist · sewer systems at points of direct...

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