How healthy are your utility’s financial fundamentals?

Posted February 2006

By Howard W. Hoover and George A. Raftelis

As explained in this AWWA Journal article (April 2005), there are three areas that utilities should address to improve their financial strength: financial planning and management, effective pricing, and affordability.

First, financial planning and management involve an iterative process through which strategic business planning, capital planning, and financial planning are considered. Second, effective pricing is a key component to help utilities realize their goals and objectives through an equitable rate structure. Third, affordability and factors affecting the affordability of water and wastewater service offer insights into circumstances and limitations that may affect the revenue-earning potential of utilities. By addressing these areas, utilities are further enhancing their financial strength.

With water rates increasing at a rate nearly twice that of the consumer price index, affordability is becoming an increasingly important—as well as challenging—issue. The steady upward climb of water rates—and the associated challenges that will likely come with this trend—will make sound financial planning one of the more important issues to be faced by utilities in the coming decade.

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