City, county should do water rates right
Your water rates will be going up in the not too distant future
to pay for a more reliable supply and improved water quality, both
desirable enhancements. I have no idea what the new rates will be,
however, because target rates were not established as an initial
program goal. The increases may be tiny or they may be
”
holy cow.
”
We’ll have to wait and see. When target rates are not part of
the process from the very beginning the ratepayers are likely to
end up paying more than they should. The reason is the last item on
the agenda usually has to absorb the consequences of all the
previous decisions; no one wants to go back and do things over
– and the last item on the agenda is too often the rate
increases.
City, county should do water rates right
Your water rates will be going up in the not too distant future to pay for a more reliable supply and improved water quality, both desirable enhancements. I have no idea what the new rates will be, however, because target rates were not established as an initial program goal. The increases may be tiny or they may be “holy cow.” We’ll have to wait and see. When target rates are not part of the process from the very beginning the ratepayers are likely to end up paying more than they should. The reason is the last item on the agenda usually has to absorb the consequences of all the previous decisions; no one wants to go back and do things over – and the last item on the agenda is too often the rate increases.
General statements such as “we will try to keep the rates as low as possible,” are useless because they do not drive the planning process any more than statements such as “we need to make the water as clean as possible.” The water engineers would never accept that kind of quality goal and the public should not accept that kind of cost goal; both need measureable objectives.
The typical process for a program is to establish the technical goals, list the got-to-have and nice-to-have items and total up all the estimated costs – the capital investment, operating costs, overhead, financing, and all the rest, and then divide it out by the bond basics and send the bill to the ratepayers as rate increases. There may be scores or hundreds of cost drivers in a big project. Decisions are made with an eye to overall costs, but these are not translated into rate increases until the end. The managers are rarely willing to do things over because the rates were higher than expected.
There is a better way to do this by establishing acceptable rates increases at the beginning along with all the other program requirements. The rates are then broken down as a part of every project phase; every time a decision is necessary, the staff can consider the effect that decision has on the rates along with all the other factors. You build the rate structure as you would build the plant and the program. This establishes where you should spend more and where you should spend less to get the best combination of product and cost.
The method is an offshoot of my experience with two companies that priced their products in strikingly different ways. One company built their price up. They added all the estimated costs, tacked on a profit margin, and came up with a sell price. You win some contracts like that and you lose some. The second company came up with a sell price and profit margin first and they built the entire program to attain those goals. They won more contracts with lower prices and their costs came in lower and closer to predictions.
It’s never too late to try to do this right and take the sting out of the water rate increases by including specific rate targets as a program goal and using that goal in every phase of the project. Yes, it’s more work to be constantly updating another estimated item – the rate increases, but with computer spreadsheets, it’s not much. A few keystrokes let’s you change everything from the interest rate to the administrative costs and it the end it pays dividends for the ratepayers because they know early on what the project is probably going to do to their water bill. “It costs what it costs,” is no longer an acceptable way to do the people’s business.
Marty Richman is a Hollister resident.
