Dale Barrie Training & Technical Assistance Specialist Iowa Rural Water Association - Dale Barrie 1
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
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
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
Iowa Rural Water Association - Dale Barrie 5
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
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
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
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
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
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
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
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
Flat fee Uniform Decreasing block (development) Increasing block (conservation) Base Plus (combination) Residential Commercial Industrial Governmental Wholesale Iowa Rural Water Association - Dale Barrie 14
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
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
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
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. Iowa Rural Water Association - Dale Barrie 18
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
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
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
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
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
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
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
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
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
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
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
Staff Decision Makers Customers Iowa Rural Water Association - Dale Barrie 30
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
Tough choices Short and long term plans Support staff Ability to justify decisions to customers Iowa Rural Water Association - Dale Barrie 32
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
Review Study Analysis Iowa Rural Water Association - Dale Barrie 34
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
Item Water Sewer Data: 7/1/14 to Revenue $ 151,000.00 $ 68,500.00 6/30/15 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%? Iowa Rural Water Association - Dale Barrie 36
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
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
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
Water Loss Inflow and Infiltration (I&I) Asset Management Planning Reserves Debt Iowa Rural Water Association - Dale Barrie 40
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
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
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
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
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
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
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
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
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
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
Current & future principal & interest Reserve requirements If multiple sources, when will each be paid off Refinancing options? Iowa Rural Water Association - Dale Barrie 51
Iowa Rural Water Association - Dale Barrie 52
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
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
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
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
Flat fee Uniform Decreasing block (development) Increasing block (conservation) Base Plus (combination) Iowa Rural Water Association - Dale Barrie 57
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
Fixed Costs - Expenses incurred without sales Debt Funding of capitol and reserve accounts Iowa Rural Water Association - Dale Barrie 59
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 Iowa Rural Water Association - Dale Barrie 60
Iowa Rural Water Association - Dale Barrie 61
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
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 Iowa Rural Water Association - Dale Barrie 63
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
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
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
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% Iowa Rural Water Association - Dale Barrie 67
Meter by size and replacement costs Capitol Improvement General Specific Project Sunset? Others? Iowa Rural Water Association - Dale Barrie 68
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
Dale Barrie Training Specialist dbarrie@iowaruralwater.org 515.707.8385 Iowa Rural Water Association - Dale Barrie 70