Six strategies for water utilities facing declining revenues
Utilities throughout the U.S. are experiencing declining revenues as a result of water conservation, leaving less money to pay for maintenance and operations. A common reaction is to start the arduous process of raising rates to address short-term budget shortfalls. A more comprehensive approach to asset management can help set up utilities for long-term success.
By modeling long-term revenue projections against target service levels, potential risks and projected maintenance costs, utilities can better identify cost savings and future capital needs. An integrated strategy rooted in sound data and forecasting allows utilities to develop defensible long-term budgets. Here are six steps that leading utilities have used to successfully address declines in revenues:
1. Develop an asset management strategy
Asset management is a structured approach to maintain assets based on maintenance and operating costs, expected life and capital improvement plans. A clear plan allows utilities to implement a strategy for improving assets and enables defensible decision-making, including when to rehabilitate and replace assets.
2. Evaluate assets based on the risk of failure
Evaluating assets based on risk levels is a sound method for prioritizing asset renewal and replacement. The approach takes into account the likelihood of failure by examining the condition of individual assets and the consequence of failure. For utilities facing revenue declines, this approach objectively estimates critical infrastructure costs over the long term and helps avoid major rate increases to cover emergency shortfalls. An asset management approach based on risk saves money by driving down the likelihood and overall number of costly emergencies.
3. Identify hidden cost efficiencies
There can be a disconnect between the level of service believed to be needed and what the public and key stakeholders expect to see. Utilities should have an open dialogue with the public about what is worth funding and what may be reduced until more funding is available. If the public expects to see 98 percent of the service available, and the utility is operating with 99 percent of the service available, then an opportunity to save money has been identified.
4. Consider new rate structures
Utilities may consider looking for ways to separate rate structures from the volume of water used. A static base rate combined with a volume-based fee structure allows utilities to maintain a certain level of revenue and avoid significant rate increases.
5. Be transparent
Utilities should consider opening the budget process to the public and other stakeholders by sharing information gleaned through asset management activities. That can lead to improved customer satisfaction and acceptance of recommendations. By spending the time in the front-end to include stakeholders in meaningful ways, utilities can minimize the need to repetitively defend and revise budget requests.
6. Track data
A successful asset management plan sets up a continual stream of data well into the future. It is important for utilities to ensure any investment in technology supports decision-making and makes asset data easy to input and easy to report. The data also offers transparent information for key stakeholders. Utilities should consider incorporating asset management into existing field operations, such as having existing field crews collect information on each asset type.
- Read the main story, “Driving them to drink,” to learn how declining water demand causes new headaches for water managers.
Roger Austin is the director of strategic consulting for Broomfield, Colo -based MWH, a global management, engineering and construction firm.