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FINANCIAL ANALYSIS OF RESIDENTIAL WATER AND SEWER RATES AND RATE SETTING PRACTICES

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Abstract:

North Carolina utilities use many different rate structures and practices under an economic regulatory framework that has few rate setting requirements. These different rates and rate structures have financial impacts on revenue stability, household expenditures, and water use behavior. Different rate strategies influence resource use differently and, conversely, efforts to impact resource use (for example, conservation) have unique revenue impacts depending on a utility's type of rates and customer base. For example, for some rate structures, drops in consumption due to conservation efforts or external factors lead to a disproportionately high drop in revenues. This paper examines NC water and wastewater utilities' rates and rate setting in the context of the impact they have on utility financial health, customer financial capacity, and resource use. This research includes a survey of water and wastewater rates and rate structures in NC, with over 350 government-owned and non-profit utilities covering over 80% of North Carolinians provided with centralized water and sewer service. The methodology and application of this project is different from other previous rate studies. For the first time in such studies, rate information is put into a model that calculates residential charges/expenditures for water and/or sewer in different types of households served by all the different systems throughout the state, for any set quantity of water consumed by the household, rather than computed at discrete consumption levels (typically rate surveys present residential billing amounts for 2 or 3 consumption levels) These rate data are then combined with information from existing financial and environmental databases maintained by other state agencies to compare the modeled residential billings to other indicators, such as the community's MHI and the utility's operating revenues. Utility managers can use this information to gauge the relative affordability of their services to their customers. Following a literature review, the integrated dataset will then be used to identify key trends and causal relationships inherent in the state's current rate practices. The models and analyses will be used to project the financial impacts – at the state, utility and household levels – of policy options currently being considered by local governments, state regulators, and funding agencies, such as statewide conservation efforts, or changing the eligibility criteria for different sources of funding.

Document Type: Research Article

DOI: https://doi.org/10.2175/193864706783789662

Publication date: 2006-01-01

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