Finance Forum: Water Rate Setting And Long-Term Fiscal Planning For Small Water Systems

The Environmental Finance Center at UNC hosted a finance forum for drinking water systems in collaboration with the EPA’s Water Infrastructure and Resiliency Finance Center, EPA Region 4 and the Alabama Department of Environmental Management. The forum was held in Florence, Alabama.

Water utilities generally get most of their revenue from user charges. In order to ensure proper funding of utilities, it is critical that small water systems fully understand both rate setting and long-term fiscal planning. Systems should understand how policy decisions that promote economic development or conservation can impact revenues and aim to set rates that promote utility priorities while recovering the full cost of operation.

The forum helped address the financial stability of small water systems while providing safe, quality drinking water at fair rates. Topics included many aspects of financial management and planning of a water system fund, including rates and rate setting, controlling costs, planning for capital expenses, benchmarking financial performance, and collaboration between nearby small systems.

This forum was designed for drinking water systems serving 10,000 or fewer people, especially targeting local government systems facing financial challenges. Owners of privately owned systems, consultants, and technical assistance providers serving small water systems were also invited to attend.

Small drinking water systems in the following eight Region 4 states were invited to register:
Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee.

The forum was submitted for CEU approval to the various states within the region that pre-approve continuing education credits. Attendees have been advised to contact Rosemary Astra-Blossom at roseab@live.unc.edu to receive a certificate of attendance.

Click on the links below in the agenda to access the presentations. Click here(link is external) for a blog post about the finance forum.

Welcome and Introductions

Introductions include brief information about housekeeping and Water Finance Clearinghouse.
Jeff Hughes, Environmental Finance Center at UNC (EFC at UNC)
Stacey Isaac Berahzer, EFC at UNC
John Covington, U.S. Environmental Protection Agency

Small Water Utility Finance 101 Part 1 | Part 2

Session discussed how to think about the water system as a financial entity. Small water systems face special challenges. The infrastructure needs per residential connection are much greater for small systems. Smaller systems also tend to have a higher number of health violations.

Facilitators:
Stacey Isaac Berahzer, EFC at UNC
Jim Grassiano, Alabama Department of Environmental Management (ADEM)

Benchmarking & Assessing the Financial Condition of Your Water System

Session examined the key financial indicators that allow water systems to make informed decisions in planning and investment. In a hands-on exercise, participants learned how to calculate and interpret a water system’s operating ratio, debt service coverage ratio, current ratio, and days of cash on hand. We also discussed how funders use these numbers in deciding whether or not to loan systems money needed for capital improvements.

Facilitators:
Stacey Isaac Berahzer and Jeff Hughes, EFC at UNC;
David Austin, Jeremy Cormier, and Dana Eldridge,
Georgia Environmental Finance Authority (GEFA)

Generating Needed Revenue: Rate Setting Part 1 | Part 2 | Data for Part 2

Session provided an overview of best management practices in rate setting. Water utilities generally get most of their revenue from rates. In order to ensure proper funding of utilities, it is critical that small water systems fully understand both long-term fiscal planning and rate setting. Systems should understand how policy decisions that promote economic development or conservation can impact revenues and look to set rates that promote utility priorities while recovering the full cost of operation.

Facilitators:
Jeff Hughes, EFC at UNC
Jason Barrett, Mississippi State University Extension

Asset Management Part 1 | Part 2

Session provided a framework for embarking on effective utility management and asset management. While we provided an overview of the 5 core components of Asset Management, we focused on the components of “level of service” and “criticality.”

Facilitators:
Stacey Isaac Berahzer, EFC at UNC
Chris Lovelace, Alabama Rural Water Association

Panel on System Collaboration Alabama Case Study | Kentucky Case Study | Handout

Session provided some of the benefits and examples of water systems collaboration. Collaborating with other utilities is one strategy to help systems address some of their challenges. There are many different ways systems can collaborate, from extremely informal information sharing sessions, to sharing of personnel or purchasing to assistance with regulatory compliance. In some cases of collaboration, several systems actually merge into one. We looked at an example where systems from different states have regionalized into one system.

Facilitators:
Dennis Harrison, ADEM
Roger Recktenwald, Kentucky Association of Counties
John Walton, Logan-Todd Regional Water Commission

Funders Overview

Session provided descriptions of individual financing programs and how they may interact with each other. There are several federal and state programs that provide financing for water infrastructure projects. However, the process for securing even loan funds is often highly competitive. Speakers included persons involved in administering the programs in the state.

Facilitators:
Desmone Black, Mississippi State Department of Health
Michael Griffiths, CoBank
Chris Jones, GEFA
Annaka Woodruff, Appalachian Regional Commission

Wrap Up

Overview of Tools:
Utility Financial Sustainability and Rates Dashboards
Water and Wastewater Rates Analysis Model
Water and Wastewater Residential Rates Affordability Assessment Tool
Financial Health Checkup for Water Utilities