Financial Capacity and Rates!Jeff Hughes, Annalee Harkins, Shadi Eskaf

UNC School of Government Environmental Finance Center, 

jhughes@unc.edu, aharkins@sog.unc.edu, eskaf@sog.unc.edu

February 6, 2018

Chapel Hill, NC

Session Objective

Share experiences and practices prevalent among participants and utilities throughout the state

Topics

Rate setting environmentHeadline stories and issues

• Outside rates• Affordability• Transfers

Outreach/communication• Dashboard Preview

Research on the State of Rates and rate practices in NC

What is biggest challenge to setting rates in your utility? (2017 participants)

1. Falling consumption trends/difficulty with projections

2. Governing board’s unwillingness to raise rates

3. Communities ability to pay more for water and wastewater service

4. Pressure to keep rates comparable to other water utilities

5. Rising cost of other governmental taxes and fees

6. Other? 1. 2. 3. 4. 5. 6.

5%

33%

0%

5%

19%

38%

Anticipated rate increase request for next year (2016 Participants)

1. No change

2. 0 to 2.99%

3. 3 to 5.99

4. 6 to 9.99

5. 10 or above

Headline Stories and Issues

Rates Continue to be Scrutinized The Future of Rate Setting and Revenue Monitoring?

Status Quo State incentives or disincentives (Eligibility for state grants) Statutory prohibitions (stormwater fees) Statutory limits and thresholds Third party oversight (investor owned utilities) Required processes (System Development Fees) Adherence to more consistent practices

Rates

In addition to municipalities, 10 other utilities (Sanitary Districts, Metropolitan District, and Counties) also charge “outside” rates differentials.

Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

Not all Transfers are Created Equal

Reimbursements to cover services/indirect costs Loan repayments for general fund loan Payment of rate of return for investments Payment in lieu of taxes (PILOT)Undocumented and used to coverall general fund shortfallsUnknown

Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

Preliminary Results of Utility Management Survey on Transfers

Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

NC Water & Wastewater Rates Dashboard

Displaying January 2018 ra tes

Your First View of the

Thanks to the Division of Water Infrastructure of the NC Department of Environmental Quality for funding and providing this resource to NC utilities.

The State of Rates in NC in 2018

Your Sneak Peak into…

NC Water and Wastewater Rates Survey

Joint annual surveys since 2005  2018 survey: 495 utilities included (95%)  Rates Dashboard just released! Tables and summary report to be distributed in coming weeks at   http://www.efc.sog.unc.edu and http://www.nclm.org Resources for utilities provided and funded by the Division of Water Infrastructure of the NC Department of Environmental Quality

Picture Source: Indio Water Authority http://www.indiowater.org/index.aspx?page=587

NC local government utilities collected

more than $2.86 billion*  in water and wastewater operating revenues in FY2017* Not including ~80 municipalities with missing data at the time of this presentation, probably pushing the total to $3.0 billion

Picture Source: Charlotte Water http://charlottenc.gov/Water/Pages/Home.aspx

Charlotte Water collected 

$402 million in water and wastewater operating revenues in FY2017Highest in North Carolina

Picture Source: Google Maps Streetview

Town of Whitsett collected 

$17,957in water operating revenues in FY2017 (no wastewater system)Lowest in North Carolina

If this was Charlotte Water’s 

revenues

Then this was Whitsett’srevenues (actually this is larger!)

Half of the utilities charge residential customers more than$74.37 for combined water and wastewater

per month

$34.00 for water $42.00 for wastewaterFor “inside” residential customers using 5,000 gallons/month

Picture Source: Wikimedia Commons https://commons.wikimedia.org/wiki/File:Raleigh_city_limits_sign.jpg

83% of NC’s municipalities charge different rates outside city limits

Half of the municipalities charge1.83x higher for water and1.93x higher for wastewaterthan they do for inside customers

For residential customers using 5,000 gallons/month

The Average North Carolinian pays…

$72.13/monthfor 5,000 gallons of water and wastewater, combined.

Accounting for service populations and inside/outside rates.

Water rates in 40% of rate structures and 

Wastewater rates in 43% of rate structures were 

raised last year

Out of 433 water & 364 wastewater rate structures since last year

Half of the rate increases were greater than 4.0% for water and 4.0% for wastewater

At 5,000 gallons/month

Water Rate Increases Among the Same 179 Utilities Since 2006

Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

Do Rates Cover Costs?

Do Rates Cover Costs? Do Rates Cover Costs?

In recent history, about 20% of utilities did not generate enough operating revenues to cover O&M expenditures + debt service

Small utilities face greater challenges

< 1,000 1391,000 ‐ 10,000 155

> 10,000 47Statewide 341

0%

24%15%2%

8% 17%

O&M expenditures O&M expenditures + debt service16%3%

Operating revenues less than…Number of water service connections

# of water utilitieswith data

FY2017 data. About 80 local governments’ data not yet available.

Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

Percent of utilities responding

Utility Planning Efforts in 2017

Monthly water base charge Min non‐zero:  $3.16 (Cary)Median:         $16.13Max:               $42.00 (Martin County)Unique sections in 4 utilities charge more, up to $101.64

Monthly wastewater base charge Min non‐zero:  $1.00 (Laurel Park)Median:         $18.00Max:               $80.44 (Oak Island inc. 4000 gallons)Currituck County charges $100.00 in Moyock Commons

Monthly combined water & wastewater base charge

Min non‐zero:  $6.32 (Cary)Median:         $34.00Max:             $112.15 (Oak Island)

Highest volumetric rate per 1,000 gallons at 5,000 gallons/month

$13.00/1000 gallons Water (Washington County)$25.00/1000 gallons Wastewater (Walstonburg)Yadkin County charges $19.50/1000 gallons for water in its Jonesville service area (Jonesville outside rates)

Median percentage of customer bill due to base charge at 5,000

47% Water43% Wastewater

2018 by the Numbers - Inside Rates NC Rate-Setting Resources Call the EFC / SOG Guide to Billing and Collecting Public Enterprise Utility Fees for Water, Wastewater, and Solid Waste Services (by Kara Millonzi, SOG)

EFC website (http://efc.sog.unc.edu) offers:o NC Rates Dashboardo Do‐it‐yourself Excel tools for rate scenarios and capital planning o Designing Rate Structures that Support Your Objectives guideo 2010 NCLM/EFC Financial Practices & Policies Surveyo Additional Data, guidelines, reports, and toolso Blog: http://efc.web.unc.edu/

LGC Fiscal Analysis Dashboard “Painful Art of Rate Setting” article in Popular Government AWWA  M1 Manual, EPA Rate Setting workbooks, etc. COGs, RWA, SERCAP, Consultants, etc.

Additional Slides

FY 2017 rates vs. FY 2017 Operating Ratios

Utilities with very high rates but still not recovering costs

When did utilities last increase rates? (January 2018 rates) Rate increases in the last year

Median increase to monthly bill for 5,000 gallons:

$1.32 water, $1.50 wastewater

Half of the rate increases were for more than 4.0% (water) andmore than 4.0% (wastewater)

Utilities that raise rates frequently have lower rate increases each time…

Average rate adjustment by frequency of raising rates

Reported in “Defining a Resilient Business Model for Water Utilities”, Water Research Foundation Report #4366.

… But they also accumulate greater rate increases in the long-run

Average 5‐year cumulative rate increase by frequency of rate adjustments

Reported in “Defining a Resilient Business Model for Water Utilities”, Water Research Foundation Report #4366.

Most customers are on increasing block water rates and uniform wastewater rates

Water Wastewater

Rate structures applicable to residential customers for consumption up to 15,000 gallons/month only

The first block usually ends under 6,000 gallons/month

Monthly base charges

Low bills for lowconsumption

amount

vs.

Revenuestability

What happens to your residential customers’ water bill when they reduce their use from 10,000 to 5,000 gallons/month?

Pricing different services

31% use separate rate structures for non‐residential customers

14% use separate rate structure for residential irrigation water

PRELIMINARY RESULTSFinal results will be published in the forthcoming 2017 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report

“Outside” rates are typically 1.5-2x higher than “inside” rates for municipalities

~61% of utilities (83% of 

municipalities) have 

different outside rates

Median combined bill for 

5,000 gallons:

• Inside   $80.60

• Outside $142.11

Subscribe to Keep Up-to-Date with the Environmental Finance Blog

http://efc.web.unc.edu

Examples of relevant blog posts:

Declining demands in NC

Increasing rates in NC

Operating ratios in NC

Water debt in NC

What’s wrong with %MHI

Financial strategies

And much more!