Financial Benefits of Accreditation

As described in a companion paper by Dr. Eva Nieminski, Chair of the American Water Works Association (AWWA) Accreditation Policy Committee, the AWWA is developing an evaluation system that will recognize water and wastewater utilities worldwide as meeting the highest standards of operations effectiveness and management efficiency.This paper will describe how a number of the important operational, managerial and public acceptance benefits of accreditation would have a positive benefit on utility finances. Because accreditation would inherently indicate quality in operations and management, for example, accredited utilities would be in a stronger position to request necessary funding from ratepayers and to achieve enhanced credit ratings.The specific ways in which a fully developed accreditation regime might provide a financial advantage to qualifying utilities is still under investigation – work that Public Financial Management, Inc. (PFM) is performing as part of the development of the AWWA Accreditation effort. However, some of the anticipated financial benefits of a well-structured accreditation program might include:Reduced debt service and related costs (e.g., bond insurance, letters of credit) via improved bond ratings;Reduced debt service through partnership with State Revolving Funds (SRFs);Lower insurance premiums and/or substitution for surety bonding requirements;Linkage to governmental grant/loan programs, including new initiatives such as now championed by the Water Infrastructure Network (WIN);Savings through adoption of best practices in operational and financial management;Improved credibility in rate-making proceedings; and,Community financial benefits, such as improved fire insurance ratings from the Insurance Services Office (ISO) that would reduce customer insurance costs.This paper focuses most directly on two of these opportunities with the strongest potential for achieving quantifiable financial benefits: the impact of accreditation on bond ratings and resulting debt service expenditures; and reduced debt service through partnership with SRFs. In addition, preliminary findings are outlined in other areas of potential benefit.