Dale Barrie Training & Technical Assistance Specialist. Iowa Rural Water Association - Dale Barrie 1

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1 Dale Barrie Training & Technical Assistance Specialist Iowa Rural Water Association - Dale Barrie 1

2 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 Iowa Rural Water Association - Dale Barrie 2

3 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? Iowa Rural Water Association - Dale Barrie 3

4 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 Iowa Rural Water Association - Dale Barrie 4

5 Iowa Rural Water Association - Dale Barrie 5

6 To provide adequate service to all customers: Safe and aesthetic potable water at the tap Wastewater discharge which is fully treated & meets all regulations Iowa Rural Water Association - Dale Barrie 6

7 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. Iowa Rural Water Association - Dale Barrie 7

8 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. Iowa Rural Water Association - Dale Barrie 8

9 Infrastructure deterioration High cost of repairs and replacement Out of site out of mind Political pressures Cooperation with different groups Socio-economic Fixed income customers Commercial & industrial Can water still be fair and equitably priced? Iowa Rural Water Association - Dale Barrie 9

10 Staff Time Pressure to hold the line Council or Board & Public (C.A.V.E.) Adverse to change No one likes increases Iowa Rural Water Association - Dale Barrie 10

11 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 Iowa Rural Water Association - Dale Barrie 11

12 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?? Iowa Rural Water Association - Dale Barrie 12

13 Annually Adjust when needed Keep up with rising costs Adequate funding of reserve and capitol accounts for future/emergency needs Iowa Rural Water Association - Dale Barrie 13

14 Flat fee Uniform Decreasing block (development) Increasing block (conservation) Base Plus (combination) Residential Commercial Industrial Governmental Wholesale Iowa Rural Water Association - Dale Barrie 14

15 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. Iowa Rural Water Association - Dale Barrie 15

16 Easy everyone pays the same amount Meters not needed No meter reading or maintenance Billing software No need for customer classes Easy to adjust Fair? Small users subsidize larger users Higher per capita usage No conservation Water loss can be an issue PROS CONS Iowa Rural Water Association - Dale Barrie 16

17 For very small systems with little or no commercial or industrial customers Disadvantages may well outweigh any perceived advantages Iowa Rural Water Association - Dale Barrie 17

18 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 $ Iowa Rural Water Association - Dale Barrie 18

19 Simple Equitable Easy to implement Easy to explain and justify Easy to adjust No benefit for high volume users Requires metering/billing & associated costs Revenues base solely on sales PROS CONS Iowa Rural Water Association - Dale Barrie 19

20 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) Iowa Rural Water Association - Dale Barrie 20

21 Encourages high volume users (commercial/industrial) Properly designed should have stable revenue Can be complex Can be perceived as inequitable to smaller volume users Harder to explain/justify Harder to implement Doesn t encourage conservation PROS CONS Iowa Rural Water Association - Dale Barrie 21

22 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) Iowa Rural Water Association - Dale Barrie 22

23 Encourages conservation Can delay or reduce the need for capital improvements Good structure when supplies are limited Can provide unstable revenues Structure unfair to large volume users Complex multi-tiered Harder to explain/justify Harder to implement PROS CONS Iowa Rural Water Association - Dale Barrie 23

24 Determines an equal base charge per customer (does not include any water use) based on fixed costs fixed costs O&M Debt Reserves Calculates the cost to produce & deliver each gallon to the customer based on variable costs Variable costs O&M Production Iowa Rural Water Association - Dale Barrie 24

25 Easy to design Easy to implement Easy to explain & justify Capitol cost spread evenly, may be perceived as unfair to small customers PROS CONS Iowa Rural Water Association - Dale Barrie 25

26 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? Iowa Rural Water Association - Dale Barrie 26

27 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 Iowa Rural Water Association - Dale Barrie 27

28 Review Simple & quick Minimal data Expenses Revenue Basic snapshot Considers little if any planning An indicator of financial health Iowa Rural Water Association - Dale Barrie 28

29 Single year of data Makes some assumptions Makes some estimates 3-5 years of data Hard data Time and effort AM/CIP plans in place Detailed revenue and expenses # of customers (projected growth or decline) Gallons purchased or treated Gallons of sales Water loss and I&I Debt (current and planned) Reserves and reserve funding Equipment replacement costs Capitol Iowa Rural Improvements Water Association - Dale Barrie Plans 29

30 Staff Decision Makers Customers Iowa Rural Water Association - Dale Barrie 30

31 Have the time/willingness to Gather the information needed Put together the needed report Explain need to decision maker Customer PR Iowa Rural Water Association - Dale Barrie 31

32 Tough choices Short and long term plans Support staff Ability to justify decisions to customers Iowa Rural Water Association - Dale Barrie 32

33 Willingness to listen and understand Feel increases are justified Knowledge of current and future needs & plans C.A.V.E. Iowa Rural Water Association - Dale Barrie 33

34 Review Study Analysis Iowa Rural Water Association - Dale Barrie 34

35 Simple & quick Minimal data Expenses Revenue Basic snapshot Considers little if any planning An indicator of financial health Iowa Rural Water Association - Dale Barrie 35

36 Item Water Sewer Data: 7/1/14 to Revenue $ 151, $ 68, /30/15 Total Cash Requirements $ 154, $ 66, Goal RATIO Revenue to Cash Requirements >1.0 Annual Surplus or Shortage $ (3,300.00) $ 2, surplus % Surplus or shortage -2% 3% positive Is sewer ok and do we need to raise water rates by 2%? Iowa Rural Water Association - Dale Barrie 36

37 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? Iowa Rural Water Association - Dale Barrie 37

38 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 Iowa Rural Water Association - Dale Barrie 38

39 Single year of data Makes some assumptions Makes some estimates 3-5 years of data Hard data Time and effort AM/CIP plans in place Detailed revenue and expenses # of customers (projected growth or decline) Gallons pumped or treated Gallons of sales Water loss and I&I Debt (current and planned) Reserves and reserve funding Equipment replacement Capitol Iowa Rural Water Improvements Association - Dale Barrie 39

40 Water Loss Inflow and Infiltration (I&I) Asset Management Planning Reserves Debt Iowa Rural Water Association - Dale Barrie 40

41 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? Iowa Rural Water Association - Dale Barrie 41

42 Apparent Meter inaccuracies Data errors Unauthorized uses (thefts) Real Leaks in the distribution system Joints Valves & hydrants Main breaks Service lines prior to metering Iowa Rural Water Association - Dale Barrie 42

43 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. Iowa Rural Water Association - Dale Barrie 43

44 Pay to produce water which is not sold Costs of treating additional production or flows Expanding facilities Damage to distribution & collection systems Iowa Rural Water Association - Dale Barrie 44

45 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 Iowa Rural Water Association - Dale Barrie 45

46 It is extremely difficult, if not impossible, to operate a water or wastewater utility efficiently on outdated or failing infrastructure and equipment. 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 with the least cost? Iowa Rural Water Association - Dale Barrie 46

47 Short and long term planning We do it all the time without even thinking of it. Applied common sense Iowa Rural Water Association - Dale Barrie 47

48 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 tire Value of the car Reliability of the car Did the flat cause other damage? Iowa Rural Water Association - Dale Barrie 48

49 Needs to be part of the overall plan to allow funding Types Operating Ability to pay the bills Emergency Unexpected Debt Requirement of debt Can t be used Short lived assets Capitol Improvement Plan Other? Iowa Rural Water Association - Dale Barrie 49

50 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 Iowa Rural Water Association - Dale Barrie 50

51 Current & future principal & interest Reserve requirements If multiple sources, when will each be paid off Refinancing options? Iowa Rural Water Association - Dale Barrie 51

52 Iowa Rural Water Association - Dale Barrie 52

53 Begin with a quick review.. Indications of Financial Conditions Revenues vs cash requirements Reserves Debt Water loss and I&I Iowa Rural Water Association - Dale Barrie 53

54 Planning on needs and developing plans State of current assets Level of reserves Current/future debt Water loss I&I Iowa Rural Water Association - Dale Barrie 54

55 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 Iowa Rural Water Association - Dale Barrie 55

56 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 Iowa Rural Water Association - Dale Barrie 56

57 Flat fee Uniform Decreasing block (development) Increasing block (conservation) Base Plus (combination) Iowa Rural Water Association - Dale Barrie 57

58 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. Iowa Rural Water Association - Dale Barrie 58

59 Fixed Costs - Expenses incurred without sales Debt Funding of capitol and reserve accounts Iowa Rural Water Association - Dale Barrie 59

60 BASE RATE - WATER Calculated Projected Total Fixed Costs $ 70, $ 71, Accounts Annual Bill $ $ Monthly Min. $ 7.71 $ 7.87 Iowa Rural Water Association - Dale Barrie 60

61 Iowa Rural Water Association - Dale Barrie 61

62 Determine units to be used Per gallon Cubic foot Variable costs Operation and Maintenance Administrative Accounting and billing Iowa Rural Water Association - Dale Barrie 62

63 UNIT CHARGE - WATER Total Variable Costs $ 234, $ 261, Sales (gallons) 60,877,985 60,877,985 1,000 gallon units 60, , Unit Charge $ 3.85 $ 4.29 Iowa Rural Water Association - Dale Barrie 63

64 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 Iowa Rural Water Association - Dale Barrie 64

65 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! Iowa Rural Water Association - Dale Barrie 65

66 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. Iowa Rural Water Association - Dale Barrie 66

67 AFFORDABILITY INDEX RATIO - WATER Current Calculated Projected 5K/month annual cost $ $ $ MHI $ 55, $ 55, $ 61, AIR 0.50% 0.59% 0.57% Iowa Rural Water Association - Dale Barrie 67

68 Meter by size and replacement costs Capitol Improvement General Specific Project Sunset? Others? Iowa Rural Water Association - Dale Barrie 68

69 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 implement Easy to understand and explain Fair and affordable Iowa Rural Water Association - Dale Barrie 69

70 Dale Barrie Training Specialist Iowa Rural Water Association - Dale Barrie 70