Streamline - Spring 2013 - (Page 33)

BY CARL BROWN, PRESIDENT GETTINGGREATRATES.COM The Virginia RATES Program is at Your Service world, you would know exactly how to set your own utility’s user rates, connection fees, capacity development fees, penalty fees and every other fee. You would set each one fairly and adequately so the system would be well funded and everyone would be happy. IN THE IDEAL Now, what is holding you back from getting dramatic results? Give VRWA a call. They will set you on the course to adequate and fair rates. It doesn’t get any better than that. But this is the real world. Rate setting is complex. The exercise almost always results in higher rates. Higher rates almost always make people mad. Consequently, you would like to avoid everything about rate calculations and rate increases … except for the increase in revenue you need. To help you navigate this minefield, the Association initiated the Virginia RATES Program. Learn about the program at www.vrwa.org and click on the “25% Discount on Fees for User Rate Studies” link. Through the RATES Program, the Association provides basic rate setting help for free. During most years, that is what your system needs. That’s a great service and it’s only a phone call away. This article, however, is about those occasional years when rate setting is not basic, but complex. In those years you need a rate setting specialist. Getting a good specialist is a minefield of its own, so the RATES Program makes that a sure thing for you, too. OPTION 1 Average Rate Increase Year 0 Year 1 0.00% Year 2 0.00% Year 3 0.00% Year 4 0.00% Year 5 0.00% Rate Analysis Cost: 5-year Total Revenue Net of Analysis Cost: Net Revenue Shortfall ( - ) Compared to Option 3: Rate Revenues Without Analysis and No Revenue Increases Running Total $180,000 $180,000 $180,000 $180,000 $180,000 $180,000 $0 $180,000 $360,000 $540,000 $720,000 $900,000 $1,080,000 Average Rate Increase 16.67% 2.00% 2.00% 2.00% 2.00% Your decision to get a good rate analysis and guidance, or not, should turn on what that help will buy you. The table shows three common strategies for handling rate adjustments for a 500 connection water system. The net result from each option is this: • Over five years Option 1 results in under assessment of fees to the tune of about $400,000 compared to Option 3. Option 1 costs nothing but it also yields no extra revenues. • Over five years Option 2 performs in between the other two. There is a $2,500 cost savings compared to hiring a specialist. But the option also results in a net revenue loss of $200,000 compared to Option 3. Said another way, an additional investment of $2,500 in a specialist yields a net revenue return of $200,000 over five years. • Option 3 is the best alternative on a net revenue basis and often on a cost basis, too. Option 3 gets the revenues right. It also results in rates that are demonstrably fair. That is critical when OPTION 2 Rate Revenues With Do-ityourself Calculations and Small Increases $180,000 $210,000 $214,200 $218,484 $222,854 $227,311 $0 Revenue Running Total Average Rate Increase $180,000 $390,000 $604,200 $822,684 $1,045,538 $1,272,848 33.33% 4.00% 4.00% 4.00% 4.00% OPTION 3 Rate Revenues With Analysis and Appropriate Increases $180,000 $240,000 $249,600 $259,584 $269,967 $280,766 $5,000 Revenue Running Total $180,000 $420,000 $669,600 $929,184 $1,199,151 $1,479,917 $1,080,000 $1,272,848 $1,474,917 -$394,917 -$202,069 N.A. Assumptions: 500 connections, average monthly user rate of $30, which is currently inadequate by one-third, and inflation will be 4% annually in the future www.vrwa.org 33 http://www.GETTINGGREATRATES.COM http://www.vrwa.org http://www.vrwa.org

Table of Contents for the Digital Edition of Streamline - Spring 2013

From the President
From the Executive Director
What If?
Stormwater Management
Soapbox Farewell
Water and Wastewater Certifi cation Exam Test Taking Tips
Past 25 Years of VRWA
Proactive vs. Reactive
Asset Management and Drought Management
Is the Tank Contaminating the Water?
Committed to the Future of Rural Communities
Standard Operating Procedure For Leak Detection Using the Pressure Hold Method
The Virginia RATES Program is at Your Service
Ergs, Joules and Other Stuff
Employee Introductions
VRWA 25th Annual Exposition Agenda
Wastewater Math
eLearning Benefits
Do You Know What Your VRWA Benefi ts Are?
Membership Application
Throwing My Loop
VRWA Mailbag
Welcoming New Members
Training Calendar
Board Of Directors
VRWA Committees
Index To Advertisers/Ad.com

Streamline - Spring 2013

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