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The following is a list of the various services that RFC provides for water and wastewater utilities. We have provided several case studies of representative projects and encourage you to contact these utilities for opinions of their experience with our firm.
RFC personnel have extensive experience in conducting financial planning and rate studies for utilities across the country. The principals of the firm have provided assistance to over 400 water and wastewater utilities. As a result of this experience, we are very familiar with local, national and international issues and challenges that utilities face and we are able to provide our clients with a variety of solutions for their financial planning and pricing needs. Our experience allows us to see client issues from different perspectives and to ensure value-added solutions. Within Financial Planning and Pricing Services, there are seven separate focus areas.
Cost of service and pricing studies are the core services within the Financial Services area. The goal of these studies is to develop rates and charges that best meet a utility’s goals and objectives. RFC has conducted 150 such projects in the last five years and our personnel have conducted more than 600 during their careers. As a result of our experience with numerous utilities, both large and small, we have developed many different rate structures based on the needs and preferences of the utility and/or its customers and stakeholders. RFC's typical methodology for conducting a rate study includes the following tasks: • Conceptual Design - to identify the utility’s objectives in order to ensure that we develop the most appropriate rates and rate structures. During this task, we work with the client to identify and prioritize objectives such as rate equity, revenue sufficiency, conservation orientation, and rate stability. • Development of a Rate Model - the model is the tool by which rates are calculated, and it allows for ongoing financial planning and sensitivity analyses. Each rate model is custom built for the utility; however, we do have a project proven rate model template that we use as a basis for developing a utility’s rate model. We develop models so that they can be manipulated and updated by utility staff. • Public Outreach and Education - incorporates varying degrees of stakeholder/customer input throughout the study. Due to our extensive experience with cost of service and pricing studies, we are very comfortable presenting results to a utility’s governing body (city council, board of commissioners, etc.) Components of water and wastewater cost of service and rate studies,
include: We often perform these analyses as stand alone projects in addition to including them in comprehensive cost of service studies. Water is an increasingly valuable commodity. Whereas some parts of the country have historically recognized the value of water (the arid Southwest), other parts of the country where water has typically been plentiful are having supply issues due to population growth and environmental factors. As a result, more utilities are implementing programs to ensure that water is used as efficiently as possible. Many of these utilities have found that conservation pricing is integral to the success of their overall conservation program. The inclusion of a pricing component ensures that customers are receiving the appropriate financial signal, that discretionary water use comes at a higher unit price. RFC has significant expertise and experience in developing conservation-oriented rates and rate structures. Potential benefits of conservation pricing include delaying costly infrastructure expansions and enhanced environmental stewardship. Since each utility’s conservation objectives are different, there are a number of different rate structures that can be implemented to promote conservation. In order to establish and implement a conservation rate structure, it is necessary to: • Understand the conservation and financial objectives of
the utility; There are challenges associated with each of these tasks. For example, it can be very difficult to accurately estimate consumption because one of the goals of a conservation rate structure is to change consumption patterns. Since we have had the opportunity to assist a number of utilities in implementing conservation rate structures, we are well aware of the challenges and how to overcome them. One advanced approach to addressing the consumption challenge that RFC has successfully employed is the use of risk modeling to assess the potential for revenue variability associated with conservation rates. Water and wastewater utilities are constantly facing the difficult decision of how to most effectively utilize their limited capital resources. As the country’s water and wastewater infrastructure continues to age, the need to invest in repair and replacement of that infrastructure is increasing. However, many utilities are also faced with the need to expand capacity to meet the needs of an expanding customer base and to accommodate economic development. Making the right decision with regard to capital investments is critical to the long-term success of the utility. RFC has assisted a number of utilities in the development of a process that allows them to make intelligent and informed capital funding decisions. Typically, our assistance on this type of project takes the form of either an Extension Policy Study or a Project Prioritization Study. Extension Policy Studies typically involve the development of a utilities extension policy that defines the factors to be considered (pay back period, consistency with master plan, etc.) and how the economic feasibility analysis should be conducted for each potential expansion project. Many utilities have found that an extension policy provides a mechanism to impartially determine which extension projects to undertake. We have helped utilities develop and implement extension policies. Project Prioritization Studies involve identifying a utility’s objectives, both long- and short-term, and then developing a set of criteria that can be used to assess the extent to which each proposed project will enable them to meet these objectives. Examples of the criteria that some utilities use to prioritize projects include: Regulatory Compliance, Revenue Potential, and Rate Impacts. As capital projects continue to increase in scope and cost, more utilities are leveraging their available funds through the issuance of tax-exempt revenue bonds or other types of debt financing. The funding sources are often a better alternative to rate funding capital improvements and can dramatically decrease the rate volatility that often accompanies pay-as-you-go funding. However, in order to fully realize the benefits of debt financing, the utility must take steps to reduce its cost of borrowing. Through the preparation of a Financial Feasibility Report that is included in the Official Statement prepared to help market and sell the bonds, RFC has helped a number of utilities demonstrate to potential investors and rating agencies the relatively low level of risk that is associated with their borrowing, thereby reducing the utility’s cost of borrowing. One particular benefit of having RFC prepare a Financial Feasibility Report is that rating agencies, investors, and underwriters are familiar with our reports. Another benefit of having RFC serve on the financing team is that we can help translate different financing options into potential rate and customer impacts. Additionally, RFC is available to participate in meetings with rating agencies or state agencies that regulate the issuance of municipal debt within their respective states.
There are many ways other than bonds to finance capital improvements. Many states have revolving fund loan programs that provide loans at very attractive interest rates. There are also some state and federal grants available to assist water and wastewater utilities in meeting regulatory requirements. RFC has assisted utilities in applying for grants and SRF loans. In many states, funding is limited (particularly grant funding), so it is important to submit an application that succinctly outlines the costs of the projects and likely benefits. RFC understands the criteria by which these funding requests are judged, and we assist our clients in preparing the most favorable applications. Many utilities have found that comparing their performance with respect to key performance criteria to the performance of other similar utilities is a productive way of identifying areas where their performance could be improved. This process, commonly known as benchmarking, has become a important tool for utilities to optimize operations and financial planning. Since 1996, RFC has conducted a biennial national water and wastewater rate survey. This rate survey is the most comprehensive survey of water and wastewater rates and charges and utility financial characteristics. The data included in the survey provides an excellent starting point for a benchmarking analysis. Also, we have over 300 water and wastewater contacts that are accessible for providing additional information of a more targeted nature if needed. RFC has conducted specific benchmarking analyses to help utilities understand their operating expense, operating revenue, and debt service ratios. Since RFC has worked with numerous utilities, we can provide insight into business process improvements. For example, RFC has assisted utilities in examining the billing process and associated cost allocations, operations and maintenance costs, overhead costs allocation, capital plan and funding approach. RFC offers a range of valuation services to meet the needs of all types of buyers and sellers in the water and wastewater utility marketplace. RFC’s extensive experience and leadership in the water and wastewater industry gives us a key advantage over other valuation specialists and appraisers. Furthermore, RFC’s objectivity and consistency in approach give confidence as to the reliability and non-biased nature of its valuation results. RFC team members have a unique set of experience, skills, and education vital to utility appraisal. Currently, RFC’s staff hold the designations of Professional Engineer (PE) in the states of Georgia, California, Indiana, Kansas, Massachusetts, Michigan, North Carolina, and Ohio; Certified Public Accountant (CPA); and Certified Business Appraiser (CBA) by the Institute of Business Appraisers (IBA). IBA is a well known and respected appraisal organization. The IBA indicates the following about its CBA designation:
RFC has experience valuing water and wastewater utilities from both “fair market value” and “investment value” perspectives. The fair market value perspective considers the value of a utility to the general marketplace, and is typically required for legal and tax purposes. This valuation perspective appraises the value of the utility considering income, market, and asset-based approaches. On the other hand, an investment value perspective considers the economic value of the utility to a specific buyer and/or specific seller. This perspective is particularly useful and insightful for negotiation purposes. RFC also has the largest known database of water and wastewater utility transactions in the industry. This database provides relevant insights as to the price investors are paying for utility assets in the marketplace, and can be used to estimate the value of other utilities. In addition to valuation, RFC has extensive experience in assessing the financial feasibility of acquisition, including rate impact analyses, at a range of purchase prices. RFC also has experience in other services necessary for acquisition including:
Water and wastewater utilities, both large and small, are facing complex challenges as they strive to provide safe, affordable water and wastewater services to their customers. Changes to an already complex regulatory structure, aging infrastructure and a weak economy are just a few of the obstacles that utilities must navigate on a daily basis. In an effort to overcome these obstacles, many utilities are changing the way they do business. Smart utilities recognize that they must take advantage of industry advances such as new technology, new management approaches and new financing options in order to provide the type of service that their customers expect. In an effort to capitalize on these industry advances, many utilities have turned to the private sector for help through public-private partnerships. Whether in the form of the outsourcing of discrete functions or in a full design-build-operate contract for a new facility, numerous utilities have found that public-private partnerships offer the answer to their problems. However, enlisting the assistance of the private sector is not a silver bullet. For these relationships to be successful, it must first be determined whether private sector participation is a feasible means of addressing a utility’s specific needs. Then, if it is determined that a public-private partnership can benefit the utility, the utility must determine which of the numerous potential private partners is able to offer the greatest total value and then enter into a mutually beneficial relationship with their chosen partner. Through its comprehensive array of Procurement Assistance offerings, which include:
RFC has helped several utilities enter into public private partnerships that have provided significant benefits both economically and operationally. Today’s utility managers are faced with increasingly complex challenges.
Strategic Financial Planning can help utilities meet these challenges.
Benefits of Strategic Financial Planning are significant and include:
The result of the Strategic Financial Planning process is a clear and accurate “map” of the utility’s future course. Every utility is different and faces a different operating environment. However, they can all benefit from implementing a process that defines strategic direction for the utility and its business units, documents clear financial policies, and assures consistent execution to achieve short and long term strategic and financial success. This has become an imperative in today’s complex environment! Due to the nature of the water and wastewater utility industry, it is not uncommon for disputes to arise between utilities and regulatory agencies, contract customers, or others involving financial and management issues. Resolution of such disputes typically includes mediation, arbitration, and/or judicial action. Regardless of the dispute resolution process, parties involved in these matters often find that it is in their best interest to retain an expert to analyze and render opinions regarding the issues surrounding the dispute and, if necessary, provide expert witness services. Just as important as good legal counsel to represent your organization, a well-respected, skilled, experienced expert witness can be fundamental to the successful resolution of the dispute. RFC has a proven track record of expert witness support for clients throughout the United States. Both George Raftelis and Bill Stannard have extensive experience serving as expert witnesses before arbitration panels, state and federal courts, and before state public service commissions. Both have also served as arbitrators in matters involving water and wastewater rates. Our litigation support services have included appearances in Federal and state courts and before arbitration and state Public Service Commissions (PSCs).
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