How Can Utilities Cope With Mounting Financial Challenges?

Water utility financial practices are constantly evolving. According to Dr. Christine E Boyle, the optimal strategy for each utility to meet challenges successfully is to minimize risks associated with external changes and to increase internal financial resilience.

Rate changes are often used by utilities as a way to cope with financial problems. Budget-based rates, also known as individualized rates, have emerged as a way to meet efficiency, cost-recovery, and social equity goals (Mayer et al, 2008). Valor Water Rate Simulator helps utilities understand revenue profiles and plan strategy and visualize the impact of new rate structures like budget-based rates, peak set rates and customer select rates, and has been successfully leveraged by utilities in California and South-East USA.

In addition to rate adjustment, efficient water use can also be important in minimizing risk and building financial resilience.

The cycle of the conservation - revenue resilience is presented below:

  1. Conserving water allows utilities to cut operation and maintenance costs and defer expensive supply expansion projects.
  2. As conservation policies go into effect, the seasonal fluctuation of water use decreases, resulting in more stable customers use and associated customer sales.
  3. Reducing seasonal use eases the pressure to supply water during peak seasons and also helps achieve revenue stability.
  4. Minimizing costs and stabilizing revenue are help utilities strengthen their financial and credit standing with rating agencies. This is a major shift from previous views in which conservation was evaluated as a credit weakness that would result in decreased revenue.

To read the full article on Adapting to change: Water utility financial practices in the early twenty-first century, click here. 

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