Cashing in on Your Comprehensive Plan: Proactive Reserve & Rate Strategy

The prospect of developing a Comprehensive Plan for a utility can seem daunting. However, the cost of not planning for 75 years down the road can be devastating for your rate payers.

The water you provide to your customers is an essential need. They expect the utility to provide the same level, if not greater level, of service in the future. Just as you plan for your own retirement, we must plan for the twilight years of a utility’s infrastructure. Of course, there is no “retirement date” for a water system. But just as we don’t rely on wishes, hopes, or prayers for retirement funds, we must take concrete steps to plan for a utility’s future.

How to Start the Comprehensive Planning Process

Planning for a utility’s future involves a financial balancing act with considerations for infrastructure replacement, inflation, level of service, user base growth, full cost recovery, cash reserves, revenue stability, rate equitability, affordability, and capital financing. Each one of these items is critically important and has a direct effect on the pocketbooks of future rate payers. It is imperative to understand how these are interrelated and dependent on each other.

To begin the Comprehensive Planning process, you will need the following information:

  1. What is the useful life of each piece of the utility’s infrastructure?
  2. How much inflation should be expected?
  3. What level of service does the utility need to maintain?
  4. Is the user base expected to grow, stay the same, or decrease? Each of these scenarios has an impact on the amount of the utility’s revenue and future rates.
  5. Where do rates need to be to ensure revenue stability and full cost recovery to cover the utility’s expenses, now and in the future?
  6. How much cash should the utility have on hand now? How much will be needed in the future?
  7. What is an equitable rate for your customer base?
  8. How can a utility maintain affordability of services as inflation, changes in user base, and the replacement of aging infrastructure puts pressure on the utility’s bottom line?
  9. What capital projects will be needed and when? How will those projects be funded?

A primary goal in developing a Comprehensive Plan is to ensure the renewal of infrastructure can be funded without going into the red. Another important goal is to plan smooth and modest rate increases over time, so your future rate payers are not surprised by a steep rate hike.

To adequately prepare for the future, we must understand that inflation and replacement costs are inevitable. Over the course of a 75-year Comprehensive Plan, we must close the gap between inflated costs and revenue to continue to provide the level of service our customers expect while maintaining affordability.

If you have questions about creating a Comprehensive Plan for your utility, reach out to Sarah Sesselman at Sarah.Sesselman@ae2s.com.