At an average cost of just $1.27 per thousand gallons, municipally treated drinking water is a real bargain. In fact, it may just be too good of a deal.
Consider that your customers would have to fork over $4883.17 for 1,000 gallons of bottled water at a local convenience store (and that doesn't even include the cost of delivering it to their homes).
While no community water system governing board wants to raise rates, we all need to remember that the goal of every water system is to provide an uninterrupted supply of safe-fairly priced-water while operating at breakeven or better financially. And don't forget, you are in business and need to operate in an economically sound manner.
In this article we'll show you the steps your water board needs to take to ensure that your prices are fair and equitable while still allowing you to meet your financial obligations, and hopefully keep your customers happy all at the same time.
A Drop in the Bucket
Since the inception of the 1996 Safe Drinking Water Act (SDWA) Amendments, water systems have been required to prove their ability to function as technically, managerially, and financially sound operations. In a nutshell, as a water board you're required to make certain that your system is charging enough to support itself. If not, you could see your ability to receive state and federal funding reduced.
In order to meet that obligation, your rate structure must be designed to produce enough revenue to operate the system in a safe, lawful, and financially sound manner, while at the same time preparing for the future.
To do this, your system must be metered, and each meter should be properly maintained, and periodically tested so that you can evenly spread costs among your customers.
Remember, meters are the cash registers of your water utility.
Additional Resources
www.epa/efinpage/guidbkpdf.htm [1]
Adding up those Nickels and Dimes
The first, and most obvious step in rate setting is to identify the costs of operating the utility. Without taking this first step, you'll find it difficult to establish a fair price-or support a decision to raise costs if challenged by those you serve.
A quick way to determine your system's financial capacity is to calculate the operating ratio for your system-this is simply a quick comparison of your expenses and revenues.
To do this, just divide your system's total revenues by total expenses. If these numbers aren't readily available, your board will need to crack open its records and get started.
If after performing this quick calculation you find that the number 1 or above has magically appeared on your calculator screen, then the chances are you are meeting the minimum operating ratio required for a viable system.
However, if after plugging your numbers into the calculator you find that the sum of the equation equals a number that starts with a decimal point (or heaven forbid the results are preceded by a minus sign) there's no time like the present to begin a comprehensive rate study.
Additional Resources
www.efc.umd.edu/pdf_files/1E980_rate_design.pdf [2]
Don't Face the Rate Decision Alone
While there is no way to guarantee overwhelming public support for a rate increase, many small systems have found that their customers are more likely to accept a rate increase if:
•They have a clear understanding of the proposed rate structure.
•Can see that the rate increase is necessary in order to operate the system on a financially sound basis.
•They have been show that each class of customer will be required to pay its fair share of the cost.
Forming a committee which includes both customers and water board members when initiating a rate review is one good way to keep customers from feeling like they have been railroaded into paying higher prices.
It is also critical that you communicate regularly with your customers during the rate setting process to eliminate any feelings of shock or surprise at the end.
Remember, talk to your customers whenever possible and consider holding special meetings for public comment or even sending additional mailings explaining the process along the way. Explanations after the fact are likely to sound like excuses to your customers.
Additional Resources
www.nesc.wvu.edu/ndwc/articles/OT/SP02/ [3]
Do Your Homework
Another important step is to have your board and staff members do their homework. If you can't clearly explain why the system needs additional revenue and precisely how it will be spent, it's doubtful that your customers will support the board's decision.
Assembling a fact sheet with solid numbers that clearly show the need for additional revenue and detailing where the money will be spent is also a good idea. This will also ease tension when members of the media begin to call, and they generally won't pass up an opportunity to break the news to their readers when water prices are on their way up.
Additional Resources
Searching Under the Cushions
Before your board decides to increase its water rates, make sure that you've done everything possible to eliminate unnecessary expenses. Customer's shouldn't be asked to pay for inefficiency and waste. Also, by being able to truthfully point out the great lengths that the board has gone to in order to control costs, you may just find that many customers will be a little more understanding when they see their water bills increase.
We all know that band-aid fixes are only effective for a short time. That's why it's important to get your water system started on a needs assessment and rate study if you haven't reviewed these areas in at least two years.