Water Resources Professional Project Reports

Document Type

Report

Publication Date

Summer 2019

Abstract

Do modern water utilities face a difficult operating paradox? Is encouraging water conservation could negatively affect the utilities’ abilities to maintain healthy operating ratios by driving down the utilities’ marginal revenues (from consumption) disproportionately relative to their costs (Environmental Finance Center, 2017). How do the financial circumstances of water utilities relate to price scheduling and rate changes? Do utilities’ rate increases result in reduced debt leverage? This research summarizes water utilities’ potable water operations and financial data in search of trends between user prices at 3 levels (6,000 gallons, 12,000 gallons, 18,000 gallons – per month), water utility’s total debts, and water utility’s revenues and expenses. The sample set and pricing data considered are a subset derived from the Price of Water series of articles (Circle of Blue, 2018), which considers water pricing data from 30 municipal water institutions from across the United States, while financial and operating data for the municipal utilities has been taken from the Comprehensive Annual Financial Reports (CAFRs) from each utility in the Price of Water articles (2010-2018). The group’s real operational averages (adjusted for CPI) show declining production (-1.54%) and steady growth trends in prices and revenues (4.82% and 3.62%), with average debts outpacing all other catalogued data fields by a significant margin (7.64%). The group’s debts as a percentage of revenues grew roughly 57 basis points per year, demonstrating increasing utilization of leverage through the decade. The average operating ratio (total expenses as a percent of total revenues) showed an overall decline from .85 in 2010 to .65 in 2018, an average decline of 2.55% per year.

Keywords

public utilities, public finance, water resource management

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