Utilities need adequate and fairly structured rates. That is easy to say but hard to do.
"RATES" stands for Rate Analysis and Training for Environmental Systems.
The Kansas Rural Water Association (the Association) has worked on this for years. GettingGreatRates.com (GGR), a firm that specializes in utility rate analysis and rate setting, has been helping utilities set rates properly for years, too.
In 2012, we partnered and put together what we call the RATES Program to help you get great rates, do it simply and do it at reasonable and known cost. Following is a description of how the Program works.
RATES is a collaboration:
"Comprehensive rate analysis" means that everything that might affect rates and fees, or that might be affected by rates and fees, is considered when doing rate calculations.
GGR uses the approach described in the American Water Works Association's M1 Manual: Water Rates, Fees and Charges. The resulting rates are often called, "cost-to- serve" rates. If you want something different, that can be modeled, too.
- The Association does many kinds of technical assistance, including rate setting assistance. All of that is free.
- GGR does comprehensive rate analysis, rate setting guidance and training. This work is not free, but it ends up paying for itself in a few days in increased revenues.
How does GGR deliver rate analysis and related services and, are you protected?
The Association supervises the work, contacts and fees of GGR to make sure its member systems are treated well, charged reasonable fees and they get great rate setting results. These contacts also give the Association the opportunity to give GGR insights into each client’s situation, needs and opportunities. That information is used to make each analysis that much better.
The Association’s supervision assures that you will get great results. If not, GGR gets fired. As Mr. Brown says, “We treat people right, whether they are served through the RATES Program or not, so the supervision and input are helpful to us.”
GGR must consistently satisfy the performance standards that follow. And for your information, utilities that have already used the Program are achieving these results, among others.
• Since 2005, Mr. Brown has produced over 325 rate analyses and counting.
• He has trained thousands of rate setting practitioners.
• GGR’s models are loaded with your actual data to arrive at “cost-to-serve” rates for you. If you prefer another structure, GGR does that, too. With real data in the model, almost any structure can be created.
See GGR’s references
The main feature Association member systems notice is the 25 percent discount off GGR’s regular fees. GGR’s regular fees normally place in the bottom third of its comparable competition. That means the discounted fees are the cheapest, or close to the cheapest you can pay for a comprehensive rate analysis. Thus, some utilities may be able to have their executive (the city administrator or district manager) purchase these services within their spending limit rather than go through a time-consuming and cost increasing acquisition process. Review your spending limit policy for details about that.
Your results are also well assured because GGR has this no-recourse guarantee:
“If you are not satisfied with our work, don’t pay us.”
After 325-plus analyses so far, none of those clients have exercised the guarantee. But it’s there, just in case.
From start to finish – from scoping the project to you adopting new rates – your project is likely to take six months to complete. You will take up about two-thirds of that time and GGR the rest. Your project will probably unfold through these steps:
1. You call the Association, or call GGR at (573) 619-3411, to talk about your situation. If your rates do not need comprehensive analysis right now, Association staff will take care of you.
2. If your rates do need analysis now, and you desire it, GGR will scope your project on that call and propose services. Scoping is done by phone and usually takes about 20 minutes for each utility being considered.
a. If your system is a member of the Association, you will get the 25 percent discount.
b. If the utility is not a member, join. The discount will pay for several years of membership. Then you will get a great rate analysis, the discount AND the great benefits of having your system be a member of the Association. Membership has its benefits!
3. GGR will prepare and e-mail to you a service and fee proposal, usually within a day of the scoping call. The proposal will look much like samples you can find at gettinggreatrates.com/Freebies. Sample reports, references, Mr. Brown’s rate setting book, guides and capital improvement and repair and replacement scheduling spreadsheets are there, too.
A common theme: If you are not sure of some rates-related thing, call GGR.
4. To accept one or more services from the proposal, you just call or e-mail GGR. Unless you desire otherwise, GGR will use its proposal, its guarantee, your acceptance and the performance standards from the RATES Program as the “contract.” If you want a contract, you are welcome to draw one up. However, rather than a full and separate contract, we suggest a simple letter of engagement to add to the proposal. Our letter of engagement template, in Microsoft Word format, is on the Freebies page.
5. With your acceptance, the project is underway. Work will start by acquiring data and information. Most of this is described in the “Data Needs Sheet” on the Freebies page. You may not know what some of this data is or how to get it. Do not be concerned. GGR will guide you through everything. Every rate analysis client requires at least some data gathering help. Some require a lot. Like many other things in work and life, once you have done it a few hundred times, it gets a lot easier.
6. Following your desires and using your input, GGR will perform the analysis work.
7. Once the analysis is essentially complete GGR will e-mail you a proposed final report package. You may go back and forth a time or two until the report suits you.
8. You and GGR will arrive at a final report and rate recommendations, much like the reports on the Freebies page.
a. Using the report, you should present rate recommendations to your board or council and answer their questions, if you feel up to it.
b. Otherwise, you should have Mr. Brown do that presentation. Or, it may be sufficient to have Mr. Brown participate by speaker phone or video conference during your meeting – whatever works for you.
9. The board or council should soon settle upon new rates and fees and adopt an ordinance or rule to make them effective. This set of rates is called the “initial” rate adjustment. Now you’re off and running with new rates.
a. At this point, the rate analysis project is “complete.” But you may have need to ask questions that occur to you later, even years later. You have probably never been through this before, so some issues simply will not occur to you until they finally come up later on. When that happens, just call Mr. Brown and he can probably talk you through whatever you are concerned about.
10. As the year following the initial rate adjustment unfolds, you should track the system’s financial performance. If it performs much like the analysis had predicted, and it probably will, no changes will be needed for the rest of that year. Otherwise, call GGR.
11. At budget preparation time for the next fiscal year, you should compare the system’s financial performance with the projections in the analysis report. If you are on track you should raise all rates and fees incrementally as recommended in the report (so keep it handy). If you are NOT on track, follow Chapter 9 of Mr. Brown’s book (on the Freebies page) to make the adjustments. If you are not sure of anything, just call GGR.
12. Finally, about five years into the future, after several rounds of incremental rate increases totaling about 20 percent, the rate structure will likely become skewed enough that it will be worthwhile to start this process all over. It is also likely by then that your capital improvement needs, and other issues will have changed enough that it is time to go back to Step 1 above to true up the rates again.
Now it’s time to find out if your rates are where they should be and, if not, what it would take to get them there. It’s time for Step 1 above.
An important part of the RATES Program is the “training” piece. Rate analysis only goes so far. YOU must do the work of adjusting rates, developing budgets, planning and executing equipment repair and replacement and planning and executing capital improvements. To help you do these things well, GGR, in cooperation with the Association, conducts rate setting and related workshops for utility managers and decision-makers. Attend if you can. We think you, and your ratepayers, will be glad you did.