DO YOUR UTILITY RATES SUPPORT YOUR BUSINESS OBJECTIVES

As the view of municipal water and wastewater utilities as businesses owned by the citizens they serve continues to evolve, many managers employ private sector techniques to lead their organizations. One of these techniques is the development and implementation of strategic business plans and the move to strategic thinking as a management style. These strategic business plans usually establish the leader's vision for the utility as well as its mission, goals and objectives along with specific strategies for reaching those goals and objectives. In many cases, however, a gap exists between the rate and pricing structure employed by the utility and the goals and objectives established in the strategic business plan.It is important for the utility's business plan to consider the varying objectives of its business operations, its utility service, and its responsibilities for the community it serves in order to ensure that the organization is optimizing the value it returns to its shareholders, the citizens it serves. A thorough understanding of these business objectives, which are sometimes competing in nature can provide a strong foundation for the utility's rate and pricing structure and help assure alignment with the overall strategic business plan.This paper will examine common utility objectives within the categories of business operations, utility service levels and community objectives. These objectives will be identified, defined, and evaluated in the context of common rate and pricing structures. Some of the objectives that will be addressed include:Financial SufficiencyCapital Financing AdequacyRevenue StabilityLegalityConservation/Demand ManagementEquitable Contributions From New CustomersEasy to UnderstandEasy to Implement and UpdateCost of Service RecoveryAffordable to Disadvantaged CustomersEconomic DevelopmentThe next step will be to establish how the utility can identify which of these often competing objectives can be evaluated to determine which of objectives best meet the overall needs of the utility and he community it serves. A process to solicit and rank the opinions and views of stakeholders including utility management, staff, elected officials rate payers and the public will be discussed.A recent case study of a utility employing this technique will be presented. The case studies will summarize the results of the evaluation process and the results used in the structuring of the rate and pricing system.