efc.sog.unc.edu

Introduction to Financial Management and

Rate Setting

DENR Washington Regional Office

Water Operator Workshop

November 7, 2013

Washington, NC

Housed at the UNC School of Government.

Dedicated to enhancing the ability of governments and other organizations to provide environmental programs and services in fair, effective and financially sustainable ways.

How financially healthy is your

water system?

Do Water and Wastewater Rates Cover System Costs?

y

n = 420 (FY 2012)

Where does your water system’s

revenues come from?

Rate Structures

Base Charge ($ / bill period) (with or without consumption allowance)

+

Volumetric Rates ($ / volume used) (flat, uniform, increasing block, decreasing block, seasonal,

combination, other..)

Residential Water Use is Declining in NC

Revenues and Costs, and How

Water Use Affects Both Utilities’ costs are

mostly fixed, not dependent on the amount of water sold/used by the customers. But the majority of revenues come from the amount of water sold. If customers conserve, revenues drop significantly but not costs.

Revenue and Expenses for Charlotte-Mecklenburg Utilities in a Given Year

Source: CMU Director Doug Bean’s presentation to the Charlotte City

Council on December 1, 2008.

North Carolina Utilities’ Average Operating

Revenues and Expenditures (1997-2011)

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Fiscal Year Ending

Average Operating Revenues

Average Operating Expenditures

What Goes Into Reviewing Rates

for the Next Year?

Do these rates

send the right

signals to our

customers, based

on our objectives?

Will it provide sufficient

cost recovery?

Are we allocating

the costs to the

right customers?

What exactly

does this

include?

Will our

customers

understand these

rates?

Will our

customers be

able to pay these

rates?

Are we

following the

applicable

laws?

Will revenues be

resilient to

changing water

demands?

EFC Resources for Water Systems

to Help with Rate Setting • Guidebooks on designing appropriate rate structures

based on utility objectives

• Do-it-yourself tools in Excel to allow you to analyze your rates and try out scenarios

• Benchmarking rates and financial performance (Rates Dashboard)

• Documents that provide information and data on NC rates, tap & impact fees, financial practices, etc.

• Capital planning reference guide

• Trainings and workshops

• Direct assistance

• Weekly blog posts on related financial and managerial issues

• And more…

Where do you find all of these

resources?

http://efc.sog.unc.edu

Click on Programs / Drinking Water & Wastewater

or click on Resources (Publications and Tools)

Designing Appropriate Rate Structures

http://efc.sog.unc.edu/

Find it in Resources /

Publications

Free guide written for

utility managers in

June 2009

Thanks to Public

Water Supply

section of

NCDENR

Elements of Rate Structure Designs

1. Customer classes/distinction

2. Billing period

3. Base charge

4. Consumption allowance included with base charge

5. Volumetric rate structure

6. (If applicable) Number of blocks, block sizes and rate differentials

7. (Optional) Temporal adjustments

8. Frequency of rate changes

Presenting on Financial Planning

Tools

1. NC Rates Dashboard

2. Water & Sewer Rates Analysis

3. User-Friendly C.I.P. Tool

Developed by the EFC at UNC.

Funded by the Public Water Supply Section, Division of Water Resources (NCDENR)

and by U.S. EPA

NC Rates Dashboard http://efc.sog.unc.edu/ Find it in Resources / Tools

Benchmark your rates and your financial performance

Water & Sewer Rates Analysis Model http://efc.sog.unc.edu/ Find it in Resources / Tools

Free, simplified Excel tool allowing you to model and compare two rate

structures on your projected fund balance

Funded by NC DENR Public Water Supply Section

User-Friendly C.I.P. Tool

http://efc.sog.unc.edu/ Find it in Resources / Tools

Free, simplified Excel tool allowing you to list your capital projects and

plans for funding them, and automatically estimates rate increases

Funded by NC DENR Public Water Supply Section

We Can Assist Small Water Systems for free* *under a Cooperative Agreement with the US EPA

• Water systems serving <10,000 people can contact any of the EFCs for

free, direct assistance on:

– Asset Management

– Water Loss Reduction

– Water System Collaboration

– Fiscal Planning and Rate Setting

– Energy Management

– Funding Coordination, and

– Managerial and Financial Leadership

Please sign up on the handout if you want us to contact you

about any of the above issues, or go to http://efcnetwork.org

Where do you find all of these

resources?

http://efc.sog.unc.edu

Click on Programs / Drinking Water & Wastewater

or click on Resources (Publications and Tools)

Acknowledgement

Public Water Supply Section

(Division of Water Resources,

NC DENR)

26

Note: Come up to me during the

break to view your utility on the

Rates Dashboard or to talk about

financial issues at your system

efc.sog.unc.edu

Environmental Finance Center at the University of North Carolina

School of Government, Knapp-Sanders Building

CB #3330

Chapel Hill, NC 27599-3330

USA

Shadi Eskaf eskaf@sog.unc.edu

919-962-2785