OCTOBER–DECEMBER 2013 ADVANCES IN WATER RESEARCH 10
varied from state to state. Most utilities increased rates at a pace slightly
faster than Consumer Price Index
(CPI) inflation, particularly after the
financial crisis. In some states, however, there were also many utilities
whose rates failed to keep pace
º Rate Increase Impact on Revenue:
Many utilities have seen revenue generation track behind, in some cases
significantly, the percentage they
have increased their customers’ rates.
Figure 5 highlights the revenue generation challenge. Utilities above the
1-to- 1 lines saw revenues rise more
than rate increases while utilities
below the 1-to- 1 line found that their
rate increases did not necessarily
equate to a corresponding increase
in their revenue.
Factors Influencing Revenue
MANY FACTORS INFLUENCE a utility’s
business model and their ability to imple-
ment new practices. Some major factors
and their associated trends include:
º Service Area Size and Diversity:
Utilities serving a larger customer
base tend to have lower rates and
stronger financial performance met-
rics than their smaller counterparts.
º Water Use and Weather: Water use
for many utilities is the defining char-
acteristic in revenue health under
current pricing and finance models.
National trends indicate that average
water use per capita and per account
is generally decreasing over time.
º Economic Conditions: A bad econ-
omy, so far, has not resulted in a dras-
tic fall in aggregate revenues across
the industry, but has appeared to
slow revenue growth from pre-down-
º Capacity Utilization: Utility
capacity varies significantly
among individual utilities with
many utilities using a relatively
small fraction of their system’s
capacity during average periods.
º Economic Regulation and
Governance: The economic
regulatory framework guiding a
utility can have a major influence
on the types of financial practices
it can implement, but economic
regulation alone does not neces-
sarily guarantee financial
strength or resilience.
º Financial Management
Strategies: Water and wastewa-
ter utilities use a number of inte-
grated management theories
that can be used alone or in
concert to further utility finan-
cial and management goals.
º Credit Rating Agencies: Credit rat-
ing agencies serve as both a reflec-
tion and driver of utilities’ financial
performance. In their ratings, credit
rating agencies analyze a utility’s
preparation and response to the fac-
tors outside of its control, with a
focus on flexibility, capacity,
Figure 5. Increases in rates and operating revenues for 94 utilities nationwide, 2004 to 2012.
UTILITY FINANCE KNOWLEDGE PORTAL
PROJEC T #4366 PROVIDES a comprehensive analysis of many financial topics currently facing the industry. This
project is just one of many that WRF has available to help utilities’ with their financial related issues. In fact,
because financial concerns can have such an impact to utilities, WRF developed a Kno wledge Portal specifically
to this topic. This portal is designed to allow subscribers to quickly access important information related to
this topic and it is separated into four separate sub-topics: revenue, financial planning, board and customer
communication, and cost control. Each subtopic contains applicable project resources (projects, Webcasts,
case studies, and Web tools), a topic overview, and fact sheets. A slide library and external resources are also
available through the portal. This portal is currently being updated and it is your best bet to find available
WRF financial resources.