How Can Private Utility System Owners Ensure the Future of Their Assets?
Across the country, numerous water utility owners are buckling under the weight of burdensome operations and maintenance (O&M) costs. Unfortunately, those expenses can quickly cause the owners/operators financial hardships.
You may have wondered what can be done about this situation. Of course, you must be fair to your customers while ensuring the financial solvency of the utility.
But as expenses continue to climb, private utility owners struggle to charge their customers rates that are fair while also paying for the O&M of the utility.
Fortunately, there are options. To ensure the fiscal solvency of a utility, owners must make well-informed, data-driven decisions. A utility valuation and rate study can provide you with a tool to do that. However, performing this work is more complex than it seems to be and cannot be performed by just anyone. A firm carrying out such work must have engineers and MBAs on staff that have experience and can ensure that the proper steps are taken.
What Is a Utility Valuation?
A utility valuation is just as it sounds! Experts do a physical inventory of your system. The valuation will determine, among many things, if you are charging your customers enough for the service, whether or not the asset is adequately insured, the potential lifespan of the asset as is, and estimates for continued maintenance or replacement. Perhaps most importantly, a properly performed valuation will inform you what the asset is worth.
You may wonder why that matters to you. Perhaps your organization does not realize that you could sell your utility. Many private utility owners just like you have decided that managing a utility is not a productive use of their time. Therefore, they have sold the asset to experienced operators.
Additionally, many consumers of utilities like water, for example, use far more of that utility than they pay for if they are being charged a flat rate. Without penalties or fees for overuse, there is nothing constraining consumers from overuse of a utility like water. Thus, this arrangement almost always ends up hurting the owner of the system.
Unfortunately, this creates an untenable situation because owners cannot raise their fees without good reason. Users who do not overconsume resources will protest, rightly so, that they are being punished for their less considerate neighbors. Others may even ramp up their consumption or refuse to make payments for the utility.
What Can an Organization Do?
Selling the utility is one option. Selling could result in financial gain for the organization and have the added benefit of reducing consumption since private operators will most certainly put in a submetering system (something you could do too) to bill each customer for their monthly usage. That helps conserve critical resources.
A proper valuation should include a comprehensive rate study. This will help the utility owner know if they are charging correctly for use of the resource when compared to consumption and O&M expenses. Invariably, many private utility owners with little to no experience running a utility find—after performing a rate study—that they have been undercharging to the detriment of the utility’s fiscal health.
So, What Should Your Next Step Be?
Talk to an expert. Walden has performed numerous utility valuations and rate studies for private and public clients. We can do the same for your organization. Our staff has a thorough understanding of how to perform such work. They will provide you with the data you need to chart a sensible course of action that is fair to you and your customers.
If you’d like to learn more, read our guide for utility valuations today. For more information about the services Walden can provide or to speak to our utility valuation team, call our office today at 516-701-1681.