Ten Attributes -
Understands the full life-cycle cost of the utility and establishes and maintains an effective balance between long-term debt, asset values, operations and maintenance expenditures, and operating revenues. Establishes predictable rates - consistent with community expectations and acceptability - adequate to recover costs, provide for reserves, maintain support from bond rating agencies, and plan and invest for future needs.
Link to Example Measures
2005-2007 Water Policy Forum Summary Report
The 2006 NAWC Water Policy Forum is the ninth discussion forum held by the National Association of Water Companies. The Forum participants continued discussions on the following main topics from the 2005 Forum: 1. Best Practices to Promote Capital Investment and Cost Effective Rates 2. Importance of ROE and Risk 3. Affordability 4. Small Company Viability Additionally, the 2006 Forum expanded on the topics to include: 1. Mergers and Acquisitions 2. Security of Water Systems 3. Mutual Aid Agreements 4. Enhancing Customer Communications This report provides a summary of these topics and of the 2006 NAWC Water Policy Forum. (by Lila Jaber & JoAnn Chase (Akerman Senterfitt)) $$ Order Now
A Public Finance Primer for Public Works Professionals
After reading this primer you will have a better grasp of the terminology and concepts you need to know so you and the finance office can both get your jobs done. (46 pages, 2004) $$ Order Now
Case Studies of Sustainable Water and Wastewater Pricing
As part of its on-going efforts to promote sustainable water infrastructure, EPA has released a new document to help water utilities consider whether their rate structures sufficiently address the costs of ensuring safe and clean water. This document provides case studies describing how eight drinking water systems across the U.S. have approached water pricing. Each case study provides background on the system and describes how they are allocating costs and what rates should be charged to their customers. EPA collected this information to respond to the increasing challenges systems face with maintaining our nation's water infrastructure. This document will be made available to water and wastewater utility staff, state regulators, and technical and financial assistance providers in order to give new perspectives, and possibly valuable insight, on ways to develop and implement sustainable pricing practices. (December 2005) Free Download Now
Case Studies of Sustainable Water and Wastewater Pricing
This document provides case studies describing how eight drinking water systems across the U.S. have approached water pricing. Each case study provides background on the system and describes how they are allocating costs- and what rates should be charged to their customers in order to make the utility self-sustaining. (December 2005) Free Download Now
Economic Regulation of Water Utilities (Dr. Janice Beecher) $$ Order Now
Financing and Charges for Wastewater Systems (Manual of Practice No. 27)
This manual provides a general overview of the current practices and procedures that should be considered for financing and establishing rates and charges for wastewater collection and treatment systems. It serves as a guide to wastewater utility managers, municipal officials, engineers, accountants, and rate analysts. This manual is not intended to provide a simplistic "cook book" or universal approach to cost allocation and rate making. Rather, it is meant to illustrate the various ways of analyzing and allocating the operating and capital costs associated with collecting and treating wastewater and developing rates and charges that reasonably and equitably reflect the cost of service. The manual stresses the complexity of the integrated considerations involved in developing wastewater system cost allocation and rates for services. (280 pages, 2004) $$ Order Now
Financing Stormwater Utilities
Is your agency feeling the financial pinch of compliance with NPDES regulations? Are you looking for a dependable and equitable approach to financing your stormwater management? Find out why and how an estimated 500 communities and regional governments have turned to the utility approach. This book discusses the rationale behind the approach as well as planning utilities, legal considerations and details for establishing rate structures and estimating user charges. (80 pages, 2008) $$ Order Now
FinMod: Valuation Model for Water Utilities
Written by David L. Hayward of Hayward Consulting Group, this unique computer model enables water utility participants (e.g., utilities, bankers, utility regulators, and other participants) to estimate a water utility's value and future revenue requirements (for rate case purposes). Common applications of this model include preparing valuation studies for 12 purposes including: Financial acquisitions or divestitures, Estimating damages (e.g., condemnation, lost profits, etc.), Business and strategic planning, and Property tax. The model which uses 12 widely accepted valuation methods can be used for water utilities of all sizes. The model can be used on a stand-alone basis, or to supplement a formal valuation report. It uses financial terms and ratios adopted by the major valuation associations (e.g., NACVA, ASA and IBA). FinMod is a Windows-based Excel (2003) spreadsheet and inputting the data is simple. $$ Order Now
Setting Small Drinking Water System Rates for a Sustainable Future (December 2005)
This document is designed to help owners and operators of small systems understand the full costs of providing a safe and adequate supply of drinking water to their customers, and to guide them in setting water rates that will support these costs. Systems that will find this guide useful are small publicly or privately owned entities whose primary business is providing drinking water, as well as homeowner associations and manufactured housing communities. (December 2005) Free Download Now
Sourcebook of Regulatory Techniques
The purpose of Sourcebook of Regulatory Techniques for Water Utilities is to provide water industry and public-sector professionals with a comprehensive compilation of regulatory policies and practices. The purpose of the Sourcebook is not to emphasize, endorse, or advocate any particular approach, but rather to provide information resources.
The Sourcebook is designed to aid research and promote dialog on a wide range of alternative regulatory techniques. It contains a wealth of information about regulatory practices and includes a compilation of new, innovative and best practices by state regulatory commissions. The Sourcebook includes in addition to best practices, a compilation of NARUC resolutions, jurisdiction and coordination issues, water policy and important regulatory reports, publications and speeches. $$ Order Now
David Hayward (Hayward Consulting, Leucadia, CA) is an economist, and has over 19 years of experience in the utility industry, including nine years as a consultant, five years with the New Mexico Public Regulatory Commission and four years with public utilities. The 2006 edition of Valuing a Water Utility is a nuts and bolts workbook that provides a guide to determining the worth of your company. The book looks at the latest issues in the water utility industry, and how they relate to a water company's value, the analysis of historical financial and operating data, estimating future earnings, valuation methodologies and more. The book concludes with a case study. This book was featured in the PUR/NAWC Conference of the same name. $$ Order Now
Budget management effectiveness
Description: This measure has short-term and long-term aspects. The short-term calculations are commonly used financial performance indicators, and the long-term consideration is a more comprehensive analytical approach to assessing budget health over the course of several decades.
Short-term (typically per year):
Revenue to expenditure ratio: Total revenue / total expenditures.
O&M expenditures (percent): 100 X (O&M expenditures / total operating budget).
Capital expenditures (percent): 100 X (capital expenditures / total capital budget).
Debt ratio: Total liabilities / total assets. Total liabilities are the entire obligations of the utility under law or equity. Total assets are the entire resource of the utility, both tangible and intangible. Utilities often have different debt-risk acceptability levels, thus the ratio itself should be considered within each utility's unique circumstances. This is a QualServe Indicator.1
Life-cycle cost accounting: Has the utility conducted a life-cycle cost accounting analysis2 that explicitly incorporates accepted service level risks, asset condition, budget needs based on the values (net present values) of utility current and future assets, etc., and made financial and budget management decisions accordingly (yes/no)?
Financial procedure integrity
Description: Questions that gauge presence of internal utility processes to ensure a high level of financial management integrity.
Does the utility have financial accounting policies and procedures (yes/no)?
Are financial results and internal controls audited annually (yes/no)?
Have the number of control deficiencies and material weaknesses been reduced from previous audits (yes/no)?
Description: Bond ratings are a general indicator of financial viability; however, they are not always within a utility's control and are less important if a utility is not participating in capital markets. Smaller utilities often struggle to obtain high ratings. Even though a higher bond rating is desirable and this provides a general indicator of financial health, the bond rating should not be considered alone. It should be considered in light of other factors such as the other measures suggested for this Attribute.
Has your bond rating changed recently? If so, why? Does the change reflect the utility's financial management in a way that can and should be acknowledged and, if need be, addressed?
Description: This measure helps the utility to consider its rates relative to factors such as external economic trends, short-term financial management, and long-term financial health. It recognizes that a "one size fits all" calculation would not be realistic due to each utility's unique situation and the number of variables that could reasonably be considered. The following three questions prompt assessment of key components of rate adequacy.
How do your rate changes compare currently and over time with the inflation rate and the Consumer Price Index (CPI) or Consumer Price Index for All Urban Consumers (CPI-U)? (Rate increases below CPI for very long may suggest rates are not keeping up with utility costs.) (Using a rolling rate average over time will adjust for short-term rate hikes due to capital or O&M spending needs.)
Have you established rates that fully consider the full life-cycle cost of service and capital funding options? (See the life-cycle cost accounting discussion, above.)
Does your utility maintain a rate stabilization reserve to sustain operations during cycles of revenue fluctuation, in addition to 60- (or 90-) day operating reserves?
 Ibid., p. 51. 2004.
 Section 707 of Executive Order 13123 defines life-cycle costs as "... the sum of present values of investment costs, capital costs, installation costs, energy costs, operating costs, maintenance costs, and disposal costs over the life-time of the project, product, or measure." Life-cycle cost analysis (LCCA) is an economic method of project evaluation in which all costs arising from owning, operating, maintaining, and disposing of a [facility/asset] are considered important to the decision. LCCA is particularly suited to the evaluation of design alternatives that satisfy a required performance level, but that may have differing investment, operating, maintenance, or repair costs; and possibly different life spans. LCCA can be applied to any capital investment decision, and is particularly relevant when high initial costs are traded for reduced future cost obligations. See also: http://www.epa.gov/EMS/position/eo13148.htm, http://www.wbdg.org/resources/lcca.php.