Cutting Maintenance Costs May Lead To Water Rate Increase
Posted by: Jason Mumm / Category: EnvironmentA San Carlos, CA wastewater and sewer service provider recently wound up on the losing end of a legal case brought by a San Francisco area group that claimed the utility allowed too many ‘overflows’ of raw, untreated sewage that found its way into San Francisco Bay. Following settlement of the suit, the utility is now preparing its customers for another rate increase as the settlement requires increased spending for maintenance programs and staff. In the end, the cost of additional maintenance personnel will be passed through to customers.
Wastewater Utility Consultants provide extensive help to utilities in avoiding treatment system failures. However, this might be one instance where the utility cut its maintenance costs only to get hit with a lawsuit for failing to properly maintain its systems. And the costs of this legal action will only increase the operating costs that the utility was originally trying to reduce.
As part of the court settlement for this case, San Carlos may be required to hire additional staff to better handle system maintenance. Specifically, staff has to be hired to clean over 100 miles of wastewater and sewage pipe to reduce the likelihood of future overflows. Additional personnel are then required to meet expected court imposed service mandates into the future.
What causes utility service providers to allow its systems to be more prone to accident? Several possibilities exist including resistance from rate payers and customers to agree to fee increases. Poorly managed infrastructure can also escalate the likelihood of major accidents or system failures. A fairly simple rule remains in place though when maintenance costs are cuts, the possibility of mishaps seem to increase. In the San Carlos example, the legal settlement associated with their sewer mishaps will require the utility to increase operating expenditures for staff and overall maintenance.
Aging infrastructure requires greater maintenance. Some utilities are operating with water and wastewater plant and delivery systems that exceed 100 years in age. So as maintenance budgets are reduced to keep rates low, the chances for problems can increase significantly. Settlement costs to recover from these problems simply add to the operating expenses and cost structure – which inevitably are passed on to customers.
What are utility and service providers to do? Educating customers about the input and cost items that drive their rates up is one method. However the major tool water and wastewater service providers utilize is assembling a viable financial plan. Back in San Carlos, customers have seen their service rates nearly double since 2005. Meeting every challenge with a rate increase though is a difficult and ineffective way to manage a utility organization. A long term financial plan can both explain to customers why their rates are structured in a certain fashion as well as provide a reasonably predictable cost model for future years.
Occasionally, rate increases are simply inevitable given local circumstances. Still, these can be difficult if not painful for customers. Planning for future needs as well as for contingencies becomes doubly important if the provider is anxious to avoid constantly passing on costs to consumers.
Author Jason Mumm operates StepWise Advisors providing Water and Wastewater Consulting services to utility organizations across the country. Jason brings many years of experience and unique perspective to each client. You are welcome to reprint this article – but get your own unique content version here.
