Financial Management for Small Water Utilities

Many small public water systems lack organized finances, with little to no budgeting or accounting, no long-term financial planning, and customer rates that are not adequate to cover expenses. Many small systems also need expensive repairs or upgrades that would be difficult to afford even if they had impeccable book-keeping. In recognition of this, the federal government and many national organizations provide small systems with resources to organize and improve their finances, as well as grants to help fund major projects.

We have 1712 resources (and counting) on Financial Management in our Documents Database that provide valuable information on this topic. You can search for documents on funding opportunities to build system resiliency, building a financially healthy water system, how to use the Drinking Water State Revolving Fund (DWSRF) to mitigate the impact of drought on drinking water systems or to address DBPs in drinking water, and many other useful guides that will help you to deliver safe and clean water to utility customers. 

To access the wealth of knowledge on Financial Management within our database just select "CATEGORY" in the dropdown then choose "Financial Management." Once you make that selection, a second dropdown will appear where you can choose "HOST," “TYPE,” or “STATE” to narrow the search even further. If you have a specific search term in mind, use the “Keyword Filter” search bar on the right side of the screen.

This is part of our A-Z for Operators series.

Featured Video - WaterClips: Financial Benchmarking for Water Utilities

In this Featured Video, the Environmental Finance Center at UNC-Chapel Hill reviews the basics on how to properly monitor utility finances. Financial monitoring is crucial in making successful short-term and long-term management decisions to maintain optimal treatment levels, good customer service, and the longevity of your system. The financial benchmarking methods covered in this video include Current Ratio, Days Cash on Hand, Operating Ratio, and Debt Service Coverage Ratio. Implementing consistent benchmarking tools will ensure that your utility is working to cover the true system costs while planning for infrastructure depreciation and unexpected expenses.

Featured Video: The Big Empty

Many rural and small water and wastewater systems throughout the country face significant management and operational issues. O’Brien, Texas is just one of thousands of small communities in the United States that struggle to find the resources to ensure that the water coming out of the tap is safe to drink. Watch this documentary short produced by Tom Roseberg and Earth Institute fellow Madison Condon that details O'Brien's drinking water crisis. 

Energy Efficiency Resources for Small Utilities

On a typical day at the plant, water and wastewater system personnel are challenged to do a lot with a little in the service of protecting and producing water for their community. Certainly one way staff members are demonstrating this resourcefulness has been in their adoption of energy efficient strategies and programs. 

Why is this important? Simply stated, saving energy can help small systems put their scarce resources towards what really matters: safe drinking water and clean wastewater discharge.  

According to Wisconsin's Focus on Energy Best Practices Guide for the Water and Wastewater Industry, additional benefits to water systems include improved control and treatment as well as shorter paybacks compared to other industries on capital costs for energy efficiency improvements. Of course, the amount of energy savings will vary depending on the type of system in use, the age and condition of the equipment/infrastructure and the capital available to implement major changes, if necessary. 

But even if you have little to no capital available to make improvements, energy savings are still very much possible! This resource from the U.S. Department of Energy, and this list from ORACWA, for example, list the many low or no-cost measures plants can take to save energy, and therefore, money. 

But before you start an energy savings programs, the EPA recommends that you conduct an energy audit or assessment of your system. Free tools for doing this can be found on the EPA's Energy Efficiency for Small Drinking Water Systems webpage, or you can view this webinar recording. In addition, the Rural Community Assistance Project (RCAP) staff across the United States may be able to carry out energy audits for drinking water and wastewater facilities. Find the contact information for your RCAP region at https://rcap.org/contact/.

The next step is to identify the easy targets. RCAP has an article (Five Things You Can Do To Save On Energy in Your Utility) and a video to help you do this. In addition, the EPA has a step-by-step presentation on energy self-sufficiency and the role new technologies can play to help you achieve this. 

Other resources include: 

• Florida Rural Water Association's Energy Reduction Techniques for Small and Medium Water and Wastewater Systems
• EcoWork's Energy Efficiency Strategies for Water and Wastewater Systems
• USEPA's Ensuring a Sustainable Future: An Energy Management Guidebook for Wastewater and Water Utilities
• SEPAC's Energy Smart Tips: Water Treatment Plants 
• TNDEC's recent Case Study of Carthage, TN (pop. 2300)

Finally, here are some energy facts that might just surprise you! 

• Over 90 percent of energy consumed in producing and delivering drinking water is used for pumping. 
• 30 to 60 percent of a municipality’s energy budget is spent on the treatment of water and wastewater.
• According to the U.S. Dept. of Energy, energy audits typically identify potential savings to the user of 10 to 40 percent, with 20 percent being the average.

Hiring an Engineer for Your Infrastructure Project

Water and wastewater systems can be some of a community's largest investments, so it is really important to get it right—decisions made in the early stages of infrastructure planning can impact a community for generations to come.

Community leaders are often tempted to let an outside consultant completely handle the project because they are worried they don't have the expertise to make the right decisions. However, it is important to stay actively involved so that the community’s voice is not lost and the project is appropriate, affordable, and supported by the public.

Certainly one of the most critical early-stage decisions in this process is who to hire as your engineer, the person who will be involved in nearly every aspect of the project from evaluating financing options, completing designs, obtaining permits, bidding the project, and the actual construction. And make no mistake, this hiring process can be a challenging task. Luckily, WaterOperator.org has a collection of resources to help you through.

For example, this RCAP guide explains the steps that communities can take to gain control of the project-development process. It is a very detailed how-to and includes many pitfalls to avoid. It discusses securing funding, how to stay organized, and, how to hire an engineer. RCAP recommends following a QBS (qualification-based selection) process in order to choose an engineer whose strengths, experience and skills match your system's needs. 

For more information regarding the QBS process, you can read this manual from Ohio Qualification Based Selection Coalition (while some of the information may be specific to Ohio, much of the process is similar regardless of the state). In addition, RCAP has a handy list of 10 tips to help communities hire an engineer.

Other helpful resources in our library include Washington State DOH's guide for small public water systems on how to hire an engineer. Included in this guide are considerations regarding how to determine costs of services provided. Idaho's DEQ also has an engineer hiring guide that includes questions to ask during the interview. And this MAP guide emphasizes the importance of having a survey or analysis of the condition of your present system, as well as the problems a new project will address. This "Scope of Work", according to MAP, is perhaps the most important part of your Request for Proposals when searching for an engineer.

A final, but valuable, piece of advice, repeated throughout these resources, is that selection should be based on demonstrated competence and qualifications and not on price for services rendered. In this way, you can ensure that the project will be a valued community asset for years to come.

Featured Videos: Small Communities Benefit From Shared Resources

The Small Communities Environmental Infrastructure Group assists small Ohio communities in finding resources to help solve their infrastructure and funding problems. These two videos feature water and sewer district officials and staff discussing the benefits of participating in SCEIG regional partnerships in order to better serve their communities. 

Energy Efficiency in Action

Small systems across the country are challenged to raise revenue in order to pay for the infrastructure and water treatment upgrades necessary to meet stricter water quality regulations. However, what if this revenue shortcoming could be made-up over time within a utility itself, sometimes without raising rates? Implementing an energy audit and then applying cost-efficient energy-saving strategies may be just the ticket.

An audit or self-assessment can help staff understand how their utility uses energy as well as the impact energy-intensive processes such as pumping and aeration has on overall usage. The EPA offers a range of tools available to help with this process, including an energy use assessment spreadsheet tool.

Once an audit is complete, utilities can develop a program to reduce energy costs. RCAP suggests focusing on these five areas: benchmarking, lighting systems, HVAC systems, pump efficiency, and wastewater treatment. According to Ohio RCAP potential energy-cost reductions can range from 6 to 62 percent, with an average of less than a 1-year simple payback for communities that are actively using energy audits and energy-reduction programs.

It is always inspiring to learn about energy-saving strategies used by other systems. The wastewater plant in Copperas Cove, Texas, for example, installed new energy-efficient blowers, a modern aeration control scheme, finer screening at the headworks and a maintenance-friendly air diffusion system in order to cut their energy costs. Since their improvements, total average monthly energy costs at the plant have dropped by nearly 25%—from $22,000 per month to $16,000.

And this video shows how a utility in Evansville, IN was able to upgrade its wastewater plant without raising rates. In addition, the city became the first in the country to generate clean energy using FOG, or fats, oils and grease.

A good way to brush up on how to operate efficient small utilities is by reviewing RCAPs planning and resource guide or the EPA's Strategies for Saving Energy at Public Water Systems or Florida Rural Water's Energy Reduction Techniques for Small and Medium Systems. In addition, this handbook from South Dakota DENR guides small systems step-by-step through the auditing process and explains how to develop an energy conservation program, identify and implement energy conservation measures (ECMs), and monitor the progress and success of the implementation program.

Pipe Wars

The Drive to Privatize: Who Wins, Who Loses When Towns Sell Their Water Infrastructure

Make no mistake about it, small town utilities can represent a lucrative investment for private companies who are offering cash-strapped officials across the nation a way out of their water woes. A recent article in the Washington Post is taking a long look at how municipalities are dealing with urgently needed repairs to their water infrastructure, sometimes by offloading the burden to for-profit water companies. According to the article, investor-owned companies bought 48 water and sewer utilities in 2015, 53 systems in 2016, and 23 more through March of this year (figures from Bluefield Research).

Yet the decision to sell can come at a great cost - literally. When a private company takes over a water system, decisions on rate increases are taken out of the hands of local officials and instead decided or monitored by a state utilities regulator. "What can initially seem like a great deal" says Bolingbrook, Illinois Mayor Roger Claar in this 2016 Better Government Association article, can turn quickly sour: “The reality is [these communities] get rate increases like they never imagined.” And there are other drawbacks as well.

Ask the residents of Charlestown, Indiana who are currently in the crossfire of their town's controversial move to sell their water system to Indiana American Water Company, a deal which will significantly raise their water rates. A community group called NOW (No Outsourcing Water) is actively opposing the sale, and has filed a complaint with the state's utility regulatory commission, calling into question their mayor's motives.

Indeed, loss of public accountability can be a result when towns sell utilities. With publically-owned systems, if public officials do not respond to public concerns about the water, they can be voted out of office in the next election cycle. But when a utility is sold, it no longer has to answer to voters for contamination problems, or for rate increases for that matter. In the meantime, the water system in Charlestown still suffers from excessive manganese which turns the water brown.

Although the nation-wide percentage of privately-owned water utilities is still rather small (12%), 30-70% of water utilities in Indiana and 14 other states have gone private according to the Washington Post article. Why are so many of these towns then willing to sell?

Well, for one, private water companies have the capital to invest in infrastructure and meeting water quality regulations. Simply stated, these companies are in a better position to fix problems created by a history of funding shortages. These water company acquisitions can free up towns to use their limited funds to hire and retain critical police/fire and other staff and make much-needed repairs to roads and more. So unless state and federal funding can keep up with the acute need for expensive water infrastructure improvements (which, according to this article, it hasn't - and in fact has been decreasing), there often is no place to turn for budget-crunched public officials looking to protect public health.

But this is not happening across the board. While some small towns are considering selling, groups like Food & Water Watch are actually seeing a reversal of the private water trend especially among larger municipalities - They have compiled the water rates of the 500 largest community water systems in the country (the largest water rate survey of its kind in the country) and found that there is an ongoing nationwide trend toward public ownership of water systems.

All the same, the key finding of this report is that of the 12% of water companies that do operate privately, most are located in small, rural communities. So who wins and who loses? Each situation is unique, and for many small towns, the answers do not come easily.

How are States Using Drinking Water Revolving Fund Set-Asides?

Question: What do the following small system programs have in common? 

• A small system electronic asset mapping project in Nevada
• Free consolidation assessments and facilitations in Texas
• New equipment to help with energy efficiency audits in Utah
• A licensed operator internship program in New Jersey

Answer: They were all funded with Drinking Water State Revolving Fund set-asides.

While there are many critical infrastructure needs the DWSRF program addresses across the nation, sometimes valuable non-infrastructure opportunities such as these can get lost in the shuffle. A new analysis from the EPA is helping shine a light on the wide variety of capacity-development projects funded via set-asides that have been implemented across the country. Taking a look at this analysis is particularly helpful if state-level decision-makers need ideas about how to use set-aside funding, or have questions about set-aside funding in general. 

Using data from state DWSRF plans and capacity development reports, the analysis can help answer these needs and questions. It shows that states are using set-aside funding in the following nine (9) areas: Training and Technical Assistance, Financial Management and Rate Studies, Source Water Protection, Program Implementation (Capacity Development), Water and Energy Efficiency, Partnerships, Data Management, and Emerging Contaminants. What is important to note here is that there is a large amount of flexibility inherent in the program, which is a great thing when you are looking for ways to support important capacity-building programs in your own backyard.

What exactly is a set-aside fund? According to the EPA, set-asides are portion of each state's annual capitalization grant that support water system capacity, operator certification, source water protection, and training/technical assistance to PWSs. Set-aside funding cannot be used for water system infrastructure projects. Instead, the set-asides support "activities necessary to ensure safe and affordable drinking water by: (1) providing states with flexible tools to assist water systems with training, technical assistance and pre-construction activities; and (2) extending and enhancing the impact of DWSRF funding by ensuring that water systems have the technical, managerial and financial capacity to obtain a loan and to effectively maintain their resources." States can take up to approximately 31 percent of their capitalization grant for set-aside funding. 

Each state can develop its own funding balance between infrastructure and non-infrastruture DWSRF loans, and this balance can change year-to-year. Finally, states should review their Public Water Supply System Program priorities on a regular basis to determine the effectiveness of set-aside usage. Happy planning!