Based on this study, what recommendations would
you give water utilities to help them better prepare
for and adjust to the “new normal” of which they
I do think that for some utilities it may be time to rethink the
overall business model. For example, the telecom and financial
services industries have fundamentally changed their business and pricing models in response to a changing business
environment. Similarly, water utilities may need to start “
thinking outside the box” in terms of pricing. This study explores
several examples of different pricing structures that some may
call radical or innovative. We studied these “alternative” pricing
structures to understand their impact on customer and utility
financial stability in the context of declining and fluctuating
demands. Given the size and importance of this business
and the changes we are seeing, I do think it is important that
utility management be at least open to different approaches.
For those utilities that come to the conclusion that
they need to fundamentally restructure their busi-
ness model, where do they go for help?
One of the great things about the Water Research Foundation
is the partnerships they have created between researchers, consultants, and utilities. There is a recognition and
appreciation that “we’re all in this together” and so a tremendous amount of collaboration exists. I think tapping
into WRF’s existing body of work for inspiration is a great
starting point with recognition that ultimately implementation will require partnership between utility staff, governing boards, and the consulting and research community.
challenges. They were willing to accept revenue vulnerability in
return for maintaining a rate structure that sends a very strong
conservation pricing signal to their customers. These utilities
are less likely to change this pricing structure but may have
turned to other approaches like rate stability reserve funds.
Credit rating agencies are also spending increasing effort on
assessing revenue variability in the industry. As they continue
to do so, their efforts will obviously influence how utilities think
about risk mitigation for revenue variability (at least for those
that take on debt).
What are some of the new practices utilities are
implementing to meet revenue goals? Is it just about
Setting financial goals is a big step toward financial resil-
iency. We were encouraged to find that more and more
utilities are assessing and tracking financial performance
against various metrics and goals set in coordination with
their governing boards. This can be a game-changer in
helping utilities advance a series of revenue “levers.”
And rates are certainly one of the first “levers” a utility looks at
to stabilize revenue. However, it’s not that simple. For example,
for some utilities, an increase in volumetric rates led to a Catch- 22
situation where higher rates pressured a consumption decrease
that diluted the impact of the rate increase.
One other comment about raising rates; as utilities consider
rate adjustments there is increasing attention to affordability programs. Price increases in some regions of the country are now at
a level that they can cause real financial pain to lower income
customers. At the same time, utilities can’t keep rates low enough
to be satisfactory for all customers. Consequently, some
utilities are now implementing or at least supporting
affordability programs so that they can raise rates for most
customers and generate the revenues needed while not
being overly burdensome to lower income customers.
In addition, some utilities are experimenting with selling new products and services to generate additional
sources of revenue. One of the most common of these
is water line protection programs. However, at least at
this point, we do not see these as being major revenue
generators, relative to water sales, but more of a supplemental business line.