3 Truths That Will Make or Break a Water or Sewer Utility

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Managing Finances & Cost of Service

By JP Joly

1. Every water and sewer utility needs a financial plan.

Every water and sewer utility are unique with their operational costs, maintenance routines, timing of repairs and prioritization of asset replacements.

2. Remote work and access to financial planning are here to stay.

Remote access to water and sewer financial models and web-based platforms to optimize rates, with the ability to demonstrate visually the costs to customers of infrastructure upgrades to remain financially sustainable, is a fundamental fiscal duty.

3. Long-term financial planning is no longer a luxury but a necessity.

Every water and sewer utility requires constant monitoring of revenue and expenditure cash flows with a future-oriented perspective on revenue impacts, aging infrastructure, customer demand, and other risk and resiliency scenarios are funded.

Related — Rate Reviews & Long-Term Financial Planning: Lessons from COVID-19

A Financial Plan Addresses Uncertainty

Uncertainty dictates that the financial health of a utility depends on regular online monitoring of financial stability and rate reviews that are a built-in component of a sound, long-term financial plan — one that addresses both the needs of today and the potential for emergency needs in the future (asset failure, climate impacts, pandemics, new technologies, customer changes, regulatory changes, malevolent acts) to avoid both budget shortfalls and shocking surprises.

It is the Founding Father, famous writer, philosopher, scientist, politician, inventor, and publisher Benjamin Franklin who is credited with the saying: “If you fail to plan, you are planning to fail!” Financial planning must be included!

Web-based Platforms Are Safe and Affordable

Every water and sewer utility industry survey shows that aging infrastructure and funding are the two greatest priorities. We also know that all water projects are local and 90 to 95 percent of the financial burden. Before any grant or loan monies can be justified and acquired by the community, the utility needs to have a financial model. Many times, a small to midsize utility may not have the financial capacity to build and maintain financial planning models and may also need additional assistance for rate modeling. In these circumstances, an online web-based subscription model is the most cost-effective means of meeting all the water and sewer financial planning and rate setting needs.

Know Your Future

A Long-Term Financial Model (LTFM) creates a road map that identifies future issues and challenges, risks and opportunities, including identifying the potential for revenue shortfalls that can cause financial instability. This allows you to better prepare by taking action now to prevent those shortfalls down the road.

America’s Water Infrastructure Act: Risk Assessments & Emergency Response Plans

In 2018, the America’s Water Infrastructure Act (AWIA) was signed into law. AWIA requires community drinking water systems serving more than 3,300 people to develop risk assessments and emergency response plans (ERPs). The law specifies the components that the risk assessments and ERPs must address and establishes deadlines by which water systems must certify to EPA completion of the risk assessment and ERP. Has your utility completed the Risk and Resilience Assessment and the Emergency Response Plan?

Financial Scenarios to Mitigate Risk

Has your utility generated financial and funding scenarios to mitigate high priority risk? Water and sewer financial planning and the rate and risk mitigation evaluations is an iterative process of trust, understanding and improvement.

As stated by the EPA, each community water system serving a population of greater than 3,300 persons shall assess the risks to, and resilience of, its system. Such an assessment shall include:

  • The risk to the system from malevolent acts and natural hazards;
  • The resilience of the pipes and constructed conveyances, physical barriers, source water, water collection and intake, pretreatment, treatment, storage and distribution facilities, electronic, computer, or other automated systems (including the security of such systems) which are utilized by the system;
  • The monitoring practices of the system;
  • The financial infrastructure of the system;
  • The use, storage, or handling of various chemicals by the system; and
  • The operation and maintenance of the system.

A prudent and proactive utility will take the assessment and include an evaluation of capital and operational financial needs for risk and resilience management for the system and run various financial and funding scenarios for its elected officials.

While this compliance effort is for water utilities only at this time, the same process should be repeated for sewer utilities.

Infrastructure asset management and financial planning are the cornerstones of a modern and effective utility that is resilient, sustainable and affordable. The balancing act of risk assessment and mitigation, compliance and community service levels, and estimated costs and rate impacts is a constant process of modeling and communication. The new trend is to move this effort to the cloud, get assistance when needed, work safer and provide the visualization required to collaborate remotely to make financial decisions now and into the future.

For more than 15 years, Joly has worked with local government managers and directors of water and wastewater utilities building models for asset management, long-term financial planning, utility-rate setting and other activities related to long term sustainability. He also has enormous experience in water conservation planning, drought management planning, and emergency management planning. Joly founded Waterworth in 2016 to develop and sell a cloud-based solution for continuous utility rates management and forecasting. As CEO, he is leading dedicated and robust sales and marketing, development and customer support teams. Joly holds an Honors degree in Computer Engineering from the University of Waterloo.

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