Streamline - Fall 2015 - (Page 43)

When Consolidation Makes ¢ents BY ANTHONY HESS, MBA, SUSTAINABILITY COORDINATOR, VDH - OFFICE OF DRINKING WATER make sense to consolidate waterworks? Would there be any advantages or disadvantages of consolidation? This article considers some of these questions. DoeS iT ever Consider a hypothetical waterworks that was constructed through a government grant in the mid 1950's. This waterworks chose to only pay for their operations cost and not save any money to replace its infrastructure in the future. When water leaks equal half of the water produced, they decide to do something about the problem. Not having enough savings, the waterworks looks to outside funding sources. They obtain a government funding offer with 30% grant and 70% loan that still leaves them with considerable debt. The debt repayment forces them to raise their water rates to 1.5% of their Median Household Income (MHI). They use this funding to replace half of the piping in the distribution system. This corrects the largest part of the leaks and for several years they go back to business as usual. Finally the leakage from the other half of the distribution system has climbed to an unacceptable level; at the same time their water filtration plant needs major upgrades. Still having no savings, they turn once again to outside funding sources. The lenders determine that the waterworks is already spending more money to pay the debt payments than they spend on daily operations. The lenders are unable to finance any new projects because the high debt payments represent a credit risk. Furthermore, the community finds raising the water rates to pay for new debt payments very difficult because their rates are already the highest in the area. When combined with sewer rates, the total utility rates equal 4% of the total MHI of their residents. Many of the residents are retirees on fixed incomes and are already unhappy with the current rates, as they feel they are extremely high. The waterworks chooses to do nothing until significant leaks cause a water outage and Boil Water Advisory from the Department of Health. Now customers demand that something be done. However, there are insufficient funds to correct the problem and little ability to increase revenues. Since revenues cannot cover expenses, the community considers budgetary options. One of those options is consolidation with a neighboring waterworks. Consolidation involves the merging of the community's waterworks with other nearby waterworks. Sometimes this includes an actual connection through a pipe, and at other times it just includes the operation and management of both waterworks by a single combined staff using combined resources. Either situation takes advantage of "economies of scale," or spreading costs over more connections and sharing of equipment and staff so that each customer pays a smaller percentage of the total costs. One researcher suggests consolidation may decrease costs by 20%. Another www.vrwa.org 43 http://www.vrwa.org

Table of Contents for the Digital Edition of Streamline - Fall 2015

From the President: What if the Hokey Pokey Really is What it’s All About?
From the Executive Director: The Value of Membership
VRWA’s 2015 Expo Wrap Up
Membership is Free, but its Value to your Utility may be Priceless!!
Stock…or…Search
How to Prepare for a Lab Audit
Tomorrow’s Leaders: Attracting Young Professionals
Amherst Source Water Protection
USDA Rural Development/Virginia
Comparative Advantage
Keeping Workers Safe During Night-Time Repairs
Affordable Mixers Now Available for Southern Corrosion Engineered Tank Care Customers
When Consolidation Makes cents
NRWA Recap
VRWA Offers New Member Benefits
Throwing My Loop: Another View
Booster Club
e-Learning Benefits
Membership Application
Do you know what your VRWA Benefits are?
Welcoming New Members
Training Calendar
Board of Directors
VRWA Committees
Index to Advertisers/Ad.com

Streamline - Fall 2015

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