Streamline - Spring 2016 - (Page 25)

Decline of Coal Economic Effects on Utilities BY ANTHONY HESS, SUSTAINABILITY COORDINATOR, VDH-OFFICE OF DRINKING WATER been one of the major industries for the southwest region of Virginia. A 2015 quarterly report by the Virginia Employment Commission (VEC) states "The mining sector of the economy continues to decline." (Kestner, 2015) Utilities in this region struggle to maintain their sustainability in the face of the decline of the coal mining industry. This decline causes a decreasing customer base, decreasing revenues, (VEC, 2016) decreased tax support (Sweetman, 2015), and increased energy expenses. (Institute for Energy Research, 2012) Whenever a business suffers declining revenues, all measures to increase revenues and lower expenses must be considered. This article considers some of the options available to utilities in the region, including raising rates, cutting costs and consolidation. COAL HAS LONG The Washington Post indicates the reasons for the coal industry decline include: automation in the industry, increased regulations from the EPA, and competition from cheaper energy sources such as natural gas and cleaner coal from other regions. (Plummer, 2013) VEC reports indicate that the majority of the 8 percent unemployed in this region were previously employed in mining and extraction operations. (VEC, 2016) The VEC also projects that in contrast to the rest of the state, the population of this area will continue to decrease over time. (VEC, 2016) This creates a decreasing customer base and a corresponding decrease in revenues from the loss of these customers. Furthermore, most utilities in this area supplement their budget with taxes on coal. The coal severance tax delivers revenue directly to the local government, at levels proportional to the amount of coal removed from the area. (Sweetman, 2015) Decreasing coal production results in a decrease in the local government revenue available for these utilities. This issue is more painful for those communities that were heavily subsidizing their utilities from this tax revenue. Compounding the problem, the Institute for Energy Research predicts that in the near future "consumers will see electricity prices soar". They predict this will occur as natural gas prices are allowed to rise when they no longer have to compete with coal. (Institute for Energy Research, 2012) This increase in energy prices will hit utilities harder than many other industries. This is due to the large amount of energy used by pumps to move water through the pipes in these mountainous areas. The decline of the coal industry effects utilities by causing a decreasing customer base, decreasing revenues, decreased tax support (Sweetman, 2015), and increased energy expenses. (Institute for Energy Research, 2012). Utilities facing these circumstances are unable to take on new debt for repair and improvement projects needed to maintain the status quo. If they are to remain sustainable, they must take action to increase revenues and lower expenses. The only options available for increasing revenues include raising rates or increasing taxes. Utilities may want to compare their rates with those of their neighbor's to determine if they are underpriced. Many municipal utilities in Virginia have their water and wastewater rates posted on Draper Aden's rate survey tool, which can be accessed at www.daa. com/vawwwrates. It is important for utilities to compare, or benchmark, to utilities of similar size and demographics. (Water Research Foundation, 2014) 25

Table of Contents for the Digital Edition of Streamline - Spring 2016

From the President: Strong
From the Executive Director: Do You Need VRWA?
Thanks for the Memories!
Future Operators: Implementing A Career
Claypool Hill: Triumph Over Adversity
Work Zone Safety Awareness: V-DOT Work Zone Traffic Control Certification
Water System Consolidation
Decline of Coal: Economic Effects on Utilities
Effectively Managing Inventory Space and Costs
VRWA Report Card
NRWA Recap
Planning Reports Funded for Three Rural Water and Waste Projects in Central Virginia
VRWA Members Corner
Throwing My Loop: A Positive Life...
Booster Club
eLearning Benefits
Membership Application
Benefits for VRWA Members
Mail Bag
Board of Directors
VRWA Committees
Index to Advertisers/

Streamline - Spring 2016