A new Water Research Foundation (WRF) report, Defining a Resilient Business Model for Water Utilities, by the Environmental Finance Center at the University of North Carolina - Chapel Hill and Raftelis Financial Consultants, is the culmination of a multi-year project that examines the ability of water utilities to thrive in the presence of fiscal stresses.
Utilities across North America collaborated on the project, representing a wide range of sizes, governance models, pricing strategies, climates and demographic trends. According to lead researcher Jeff Hughes, Director of the Environmental Finance Center, analyses were conducted at the national, regional and utility level using financial and usage data from thousands of utilities and hundreds of thousands of water customers.
The comprehensive report provides an assessment of the revenue resilience of the industry’s business model, discusses factors influencing this resilience and offers strategies to build and maintain it.
Most water utilities rely on the sale of one essential product and usually raise sufficient and predictable revenue through small rate modifications. The report offers evidence, however, that the last five years have been a difficult time for this business model and recommends that water utilities should:
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understand their business risk for disruptive revenue fluctuations;
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adopt basic policies and performance targets to drive financial decisions;
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re-examine sales projection methodologies;
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consider the repercussions of the message that customers are buying gallons of water when the cost side of the business model suggests they are buying access to water; and
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consider new pricing models.
Complementing the report are tools for exploring revenue resilience: the Water Utility Revenue Risk Assessment Tool for determining the proportion of residential revenues from water sales that may be at risk when residential customers change demand patterns and the Water Utility Customer Assistance Program Cost Estimator.
The report and accompanying tools are available on the WRF website:www.waterrf.org/Pages/Projects.aspx?PID=4366.