GETTING YOUR MONEY'S WORTH: USING RATE MODELS AS MANAGEMENT TOOLS
Abstract:Like most water utilities, the City of Kansas City Water Services Department (KCWSD) restricted application of its rate model to its primary purpose – developing and defending rate levels. That changed, however, when KCWSD acted quickly to forestall the political pressures of privatization.
Launching an intense effort to optimize operations, the KCWSD, together with Brown and Caldwell, conceived performance targets for each functional area, actions to achieve the objectives and a host of “best practice” examples for comparison purposes. The Competitive Business Plan, which incorporates all the optimization actions, presented several implementation options. A number of decisions loomed and information was needed by City policy makers to understand the implications of these options.
Rate models are often overlooked as tools for utilities to facilitate the achievement of further, specific performance targets. Rate models are characteristically large, complex, and underutilized. They are typically trotted out once a year, or whenever a rate increase is needed. The models often slip by most managers as useful means of executing tactical and long-term decisions.
Working with the KCWSD leadership, Brown and Caldwell used data in KCWSD's rate model to create a stand-alone and versatile decision tool that could be used to analyze the impacts of several key financial parameters. The methodology that was developed projected the impact of a variety of decisions on capital spending, rates, and operational budgets. Testing several hot-button issues, KCWSD employed this tool to determine appropriate capital spending levels, operational considerations, and policy/institutional directions.
Document Type: Research Article
Publication date: 2002-01-01
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