Your Utility Financial Health Exam: The What, Why, When and How to Achieve Optimal Financial Health
Abstract:There are four basic questions surrounding the financial health of a utility:
What does financial health mean for a public sector utility?
Why should a utility strive to be financially healthy?
When should a utility consider itself financially healthy?
How can a utility improve its financial health?
Answering these questions can help utility management understand where they stand and the direction they should head to maximize financial health. While it seems obvious that all utilities would want to be labeled as financially healthy, there are certain aspects of reaching this goal that may have undesirable impacts on rate payers. Public sector utilities must strike a balance between financial health (a cash-rich position) and affordability. The general litmus test for measuring financial health throughout the United States is revenue bond ratings. This paper summarizes some of the rating agencies' key metrics for establishing bond ratings and identifies other measures of financial health. Achieving financial health is not a simple exercise for utility management. Rather, utility managers must be willing to commit to a broad range of actions that focus on enhancing the value the utility provides to its owners, the citizens of the municipality, district or authority where the utility is located. This paper also identifies different options for improving a utility's financial position.
Document Type: Research Article
Publication date: January 1, 2006
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