Water Rate Forecasting – How Good is the Crystal Ball?

AE2S Nexus recently rolled out the 2014 North Central Utility Rate Survey results. The purpose of the annual effort is to provide a reference for water, sewer, and stormwater utilities in our region – primarily Minnesota, Montana, North Dakota, South Dakota, and Wyoming – as they develop rate plans for the upcoming year. The survey provides a level of local benchmarking against similar utilities in a common part of the country.

The heart of the survey involves a comparison based on a monthly residential utility bill associated with 6,000 gallons of water consumption. One of the additional survey questions includes a look ahead at the coming year. Respondents are asked if they anticipate increasing rates in the coming year, and if so, the size of the potential increase. This article looks at the reported 2014 rate increases by water source and compares them to the responses AE2S Nexus received regarding projected rate increases from the 2013 survey respondents. It should be noted that although many utilities participate in the survey on an annual basis, the 2013 and 2014 survey sets do not necessarily contain the same respondents. It should also be noted that systems that use both a surface water and groundwater source are accounted for as surface water systems herein.

Reported 2014 Water Rate Increases – Municipal Systems

The July/August issue of The Source contained graphics illustrating the average reported Water, Wastewater, and Stormwater rate increases by population. Here’s a brief recap of the 2014 water rate increases included in those articles:

Metro Systems (Minneapolis/St. Paul area systems that serve 5,000 or more people and are provided wastewater service by the Metropolitan Council Environmental Services)

  • 81% increased rates 
  • 100% of surface water systems increased rates
  • 78% of groundwater systems increased rates

Large Non-Metro Systems (systems that serve a population of 5,000+)

  • 47% increased water rates
  • 53% of surface water systems increased rates
  • 43% of groundwater systems increased rates

Small Non-Metro Systems (systems that serve less than 5,000 people)

  • 28% increased water rates
  • 20% of surface water systems increased rates
  • 30% of groundwater systems increased rates

Figure 1 illustrates the average reported 2014 water rate increases by population served and by source water for all municipal survey respondents.


For comparison to the values reported in Figure 1, we reviewed the responses from the 2013 survey and generated Figures 2 through 5, which compare the averages of projected 2014 water rate increases reported in the 2013 survey to the average 2014 water rate increases reported by utilities in the 2014 survey. Figures 2 and 3 depict the projected versus reported values for Metro Surface Water and Metro Groundwater systems, respectively.  The Metro Surface Water sample set is small, so care should be taken in drawing conclusions.  Four of the same respondents were present in the 2013 and 2014 sample set, which may indicate that those utilities have a good understanding of their rate planning needs at least one year in advance.


The average projected and reported values for the Metro Groundwater respondents shown in Figure 3 were also close.  On an average basis for this source water type, it looks like implemented rates were slightly higher than originally anticipated.




Figures 4 and 5 illustrate the average projected and average reported water rate increases for the Non-Metro water utility respondents of all sizes. This data appears to be more erratic. This illustrates the fact that with the relatively small sample sets, one or two large values can skew the average. In such cases, the median can provide a useful indication of what might be considered a typical rate adjustment for each population group.

figure4 figure5

The following table reports the average and median values for all population groups, based on data provided in the 2013 and 2014 North Central Utility Rate Survey. Note in particular the results for Non-Metro Groundwater systems, where an average 2014 increase of 12.7 percent was calculated, while the corresponding median for the sample set is 6.4 percent.  This indicates the likely presence of one or more large rate increases in 2014.



So how good is the crystal ball? On a macro scale, for water utility respondents, 43 percent of respondents anticipated a rate increase in 2014, with an average forecasted value increase of 6.3 percent. An analysis of results submitted by 2014 respondents found that 44.9 percent of water utility respondents did implement an increase in 2014. For these, the average increase was 10.2 percent.

In the big picture, it seems that utilities are conservatively planning ahead for rate adjustments similar to or slightly higher than the rate of inflation. The median data also suggests that in general, most utilities appear to have a pretty good idea from one year to the next as to what will be coming next for rate adjustments. This is partly due to comprehensive planning efforts that many utilities routinely complete. As the saying goes, “knowledge is power.” The practice of forecasting and communicating upcoming rate increases, whether favorable or unfavorable, puts utilities in a good position to manage customer expectations and demonstrate fiscal responsibility.

If you have questions related to the 2014 North Central Region Utility Rate Survey, please contact Miranda Kleven at 701-746-8087 or Miranda.Kleven@ae2s.com.