Many local governments sell utility services to its residents and businesses and sometimes to others in the surrounding area. Utility services could include electricity, piped natural gas, water, sewer, solid waste (garbage) collection, stormwater fees, landfill fees, and recycling fees. If the government sells utilities that require an infrastructure component, the government is always setting aside funds to improve, maintain, or enlarge the infrastructure. The simplest way to save for those infrastructure improvements is to increase the rates and set the funds aside for specific projects.
But is this the only way to fund utility infrastructure improvements? Let’s consider the formula for utility revenues: rate times volume equals revenue. If one decides that increasing the rate is not appropriate, then volume needs to increase. But can the government increase its volume? Most think not. Consumers only purchase the amount of electricity or water that they consume. You can’t make them purchase more water than they need.
So let’s think about it from another point of view: Does the government account for all the water it produces and then sells? If you make 10M gallons this month but only sell 8M gallons, that means 20% of the volume is unaccounted for and is considered non-revenue water. The industry rule is that a 10% unaccounted for percentage is normal. A lower percentage is better and a higher percentage is not good. Therefore, selling an additional 1M gallons per month (the amount of unaccounted for water that is above the normal 10%) at $5/1,000 gallons (combined water and sewer rate) produces $60,000 annually.
This is the challenge: How does the government increase the volume without forcing the consumer to drink more water or use more electricity?
Five Ways to Increase Volume
Meter replacement: It seems that many governments are replacing their old meters with radio read meters or something even more modern. The assumption is that the old meters lose 1% accuracy for every year they are in use. In theory, a 15 year-old meter may only be reading 85% of the water passing thru the meter. But most of these total meter replacement projects replace only the residential meters. Has the government considered replacing its high volume commercial meters, those 2 inches or larger?
Calibration: Speaking of 2 inch or larger meters, not only do they slow down with age, the meter calibration may become less accurate. All of the larger meters should be placed on a regular schedule for calibration. By calibrating frequently, the expensive larger meters will read more accurately and bill more water.
Required meter reading: Does the government require every meter to be read every time even if the residence is vacant? This should be a requirement for good internal controls. How do you know someone has not turned on the water or electricity when they realized the residence was vacant and connect it to the house next door?
Water pressure: The more water pressure in the system, the more water is lost thru leaks. By decreasing the water pressure, leakage is reduced and less gallons need to be produced. However, local fire departments always want as much water pressure as possible. But do you have to have that much pressure every hour of every day? By placing pressure monitors throughout the system, the pressure can be changed in times of emergency.
Own every meter:
Maybe this happens more than I realize, but the following is a true story:
The county wanted to purchase water from one of its municipalities and then resell the water. The municipality did not want to pay to extend the water line and purchase the very large water meter. The county offered to purchase the meter to entice the municipality, and the county offer was accepted. However, when we arrived, we found that the meter had been in use for 15 years and never calibrated. When the municipality went to calibrate the meter, the county denied them access to the meter claiming it was a county meter, and the municipality had no legal right to calibrate the meter. This meter has the second largest water volume in the municipal system. One year later, the meter still has not been calibrated.
We recently visited a small town with its own water and sewer system. The combined retail water and sewer rates exceeded $5/1,000 gallons. When several textile plants closed, the town lost 35% of its volume. But the debt payments on the water and sewer plants were still due. The town’s answer was to increase the rates to their remaining customers. But the town also had 40% unaccounted water. If they could have identified the unaccounted for water, they would not have had to increase the retail rates.
How does your municipality stay on top of maximizing utility revenues? We welcome your comments and any examples you are willing to share.