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Elementary Rate Design

September 2, 2009

Many water and sewer utility managers look to their closest consulting engineer as their “expert” on water and sewer rates.  Usually, the query is because there is an emergency of some kind, as is the case in this Vermont example.  What we see in this case is a community whose water and sewer demand rates have dropped for whatever reason, resulting in a shortfall of revenue required to operate both utilities.  The recommendation from the engineer is to increase the “base” rates in order to stabilize revenue.  It’s not a terrible recommendation, but it’s also not necessarily a fair solution.  A financial expert, like those here at StepWise, would have provided other options in this case.  For example, the residents of this Vermont town might be interested in knowing just how much of the sewer costs are incurred to treat excessively strong wastewater the kind of which is normally discharged by commercial customers (things like mortuaries, bakeries, breweries, etc.); perhaps one solution would have been to identify those costs and cause those creating high-strength sewer water to pay the full cost of its treatment.  The point is that consulting engineers, unless they have both the education and experience in utility rates, are probably not a utility manager’s best option for solving these kinds of problems.  With water and sewer rates, the quick solution is rarely the best one.

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