Utility Rates & Finance Solutions
Our consultants recognize the challenges utility providers face as they strive to provide essential services to the public, fully fund the costs of providing and sustaining good service, and still keep rates and fees fair and affordable. At FCS GROUP, we help our clients succeed in balancing these sometimes competing objectives by applying our broad industry expertise of best practices to each agency we serve and by developing customized solutions that reflect the values of our clients and their communities.
Our Utility Rates & Finance practice serves water, wastewater/sewer, storm and surface water, reclaimed/recycled water, solid waste, electric, and transportation services across the Western United States.
Read more about our services below.
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Utility Rate Studies
FCS GROUP has completed over 1,100 municipal and investor-owned utility rate studies. While the scope of rate studies varies widely among utilities, some of the benefits of conducting a thorough analysis include the following:
- Establishment of financial policies, which support sound management, fiscal stability, and equitable pricing.
- Analysis of capital funding strategies that targets completion of near-term projects and provides a planned approach to addressing long-term system investments, such as rehabilitation and replacement. Having a strategy for capital needs helps to avoid rate shock and allows the utility to plan more effectively for alternative financing methods.
- Determination of current revenue needs to ensure that rates and fees can fully recover today’s costs of service and projection of longer-term revenue requirements to enable measured rate strategies which phase-in any higher levels of funding needed.
- Analysis of different reserve requirements, which identifies areas to improve fiscal stability during periods of revenue uncertainty, to address unplanned events, and to strategically fund ongoing investments in system infrastructure.
- Cost of service analysis to support the development of equitable rate structures. Equity is achieved when customers pay for utility service in proportion to their use of the service and the unique demands they place on the system.
- Development of innovative pricing structures that encourage water conservation and address critical system cost drivers, such as seasonal peaking in water utilities.
- Determination of rates and practices for unique cases, such as wholesale service, industrial users, interagency agreements, and lifeline goals.
- Support for public involvement to target buy-in and understanding of rate outcomes by utility staff and management, agency policymakers, elected officials, and community stakeholders.
FCS GROUP conducts utility rate studies in all western states and Canada. We are well versed in the different statutory obligations and can design our rate recommendations to work within the requirements of each agency we serve.
System Development Charges / Connection Charges
(Also referred to as: Capital Facilities Charges, General Facilities Charges, Capacity Fees, and Impact Fees)
More than ever before, system development charges (SDCs) are becoming an essential funding tool for utilities. SDCs are one-time fees imposed on newcomers to a utility system to mitigate the costs of new or expanded utility facilities and infrastructure required to serve their increased demand for utility service. Many agencies consider SDCs their way of “making growth pay for growth,” so that existing ratepayers are not burdened with the cost of expansion. While many states have their own statutory structure governing the imposition of these fees, they all stem from a common principle: the fee should not exceed the newcomer’s proportionate share of capital facilities required to serve. FCS GROUP has developed strong methodologies for establishing these fees, providing the necessary level of analytical justification for each utility and helping many of our clients interact with the development community when setting new or increased SDCs.
Comprehensive Plan Financial Elements / Capital Financing Plans
As a part of larger comprehensive or master planning efforts, FCS GROUP prepares financial plans, working with the utility’s selected engineer or developing the plan as a separate but concurrent effort. The motivation for a financial plan often stems from the utility’s development of a Capital Improvement Program—the list of five to 20-year needs facing the utility. A financial plan can often turn that needs list into a reality by setting the financial strategy for getting it done. Capital funding strategies are developed, including identification of resources to be used, such as rates, cash reserves, special grants or loans, and traditional debt financing. Cash flow is projected in the utility’s reserves, and rate and fee impacts are identified, including development of any transition strategies. By looking at capital needs within the context of a “whole-system” financial plan, the utility can set forward-looking strategies that define the practical means for accomplishing its program.
Capital Reinvestment (Asset Management/Reserve Funding)
Financial planning for capital infrastructure reinvestment—repair, rehabilitation, and replacement of utility facilities—is a critical component of any asset management (AM) program, and without it, AM programs lose effectiveness over time. FCS GROUP works with the finance, engineering, and operations professionals of utilities to develop a long-term “whole system” financial plan to assure the long-range success of an AM program. Our financial plans employ various methods for estimating the future costs of infrastructure replacement; establish policies on financing methods, equity issues, and rate affordability; analyze the accumulation and use of dedicated cash reserves; identify rate and fee impacts; and develop transition strategies for beginning or enhancing a capital reinvestment program. A good financial plan provides the blueprint for utilities to proactively address future replacement needs, helps to avoid rate shock, and seeks to treat different generations of customers equitably.
Utility Formations
FCS GROUP leads and facilitates water, wastewater/sewer, storm and surface water, and transportation utility formations for municipal public works organizations. Our consultants evaluate fiscal policies and objectives; create strategic ideas and input for legal documents for forming the new agency; establish a financial structure able to independently issue debt; negotiate options for long-term supply or service contracts; develop regional and agency connection charges/SDCs; analyze alternative funding scenarios; evaluate the impact of projects on the participating agencies; and allocate revenue requirements. We also evaluate various institutional, financial, and legal structures for the new organization. Finally, we provide hands-on support with public information forums.
Utility Appraisals & Valuations
FCS GROUP performs income and market-based appraisals of municipal and investor-owned water and wastewater utilities for sale to or purchase by our clients. We also employ versions of the cost approach to valuations using engineered replacement cost studies that we direct, to round out the generally approved methods of valuing utilities. We have also led, assisted, or supported negotiations related to acquisitions. The income-based valuations analyze earnings, cash flow, and rate equivalency to address buyer affordability, feasibility, and relative worth at known revenues and costs. FCS GROUP has substantial comparative sales for water utilities and sewer utilities, which are updated periodically. This information is used for comparable sales analyses.
Mergers, Acquisitions, Assumptions, Consolidations, Divestitures
Water, sewer, and stormwater utilities are provided by cities, counties, or special purpose districts, depending on their location. Under certain circumstances, these agencies might wish to consolidate to better serve the public. For example, an agency providing only water service might choose to merge with a nearby agency providing only sewer service to form a joint water and sewer utility, or one of these agencies might wish to acquire the other one. In another example, a city might wish to assume or take control of a smaller water district within its boundaries to provide water service themselves and possibly collect associated utility taxes. FCS GROUP can assist public clients with negotiating or avoiding an assumption. In the case of a divestiture, a utility owner might wish to stop providing service altogether.
FCS GROUP can assist utility providers in any of these scenarios by identifying and evaluating costs and benefits; documenting operations, facilities, plans, and organizational structures; preparing cost of service information and potential rate impacts; and developing the essential steps for implementation and any transitions. In addition, our firm has assisted several municipalities in determining what type of governmental entity should run a utility from financial and economic perspectives. In the majority of cases, we work with a qualified attorney for legal counsel and an engineer to address system and capital cost impacts of such transactions.
Fiscal Health Reviews
Elected utility officials face the challenge of operating their agencies efficiently and resourcefully, while keeping rates as low as possible for their customers. FCS GROUP’s fiscal health reviews offer ongoing preventative care as well as periodic financial check ups, in the same way a doctor annually checks our physical health. As part of a fiscal health review, our consultants analyze active budget management and reporting systems and review various ratios such as liquidity, financial performance and leverage, water and sewer maintenance, and overhead, all of which are prime indicators of financial well being. We also review infrastructure aging and replacement/reserve management programs. Finally, we can conduct a benchmarking analysis to determine how well a utility is doing in relation to similar utilities.
Regional Governance and Multi-Agency Analysis
FCS GROUP supports utilities in matters of regional significance. This includes work with groups of utilities cooperating with one another in regional water supply, wastewater treatment, and storm and surface water planning; the formation of regional bodies to oversee or provide aspects of utility service; and interagency negotiations related to wholesale service or interties. Consulting services range from feasibility analysis, cost-benefit/decision analysis, rate and fee analysis, and financial and management policy development. FCS GROUP has supported or led negotiations and has been active in public involvement processes.
Additional Services Available:
Parity Certificates
Litigation Support and Expert Witness
Negotiations and Mediations
Excise Tax Rebate Analysis (Washington)
Water Supply and Treatment Economic Analysis
Management Consulting – Our management consulting practice also supports utilities with user fees, performance efficiency audits, organizational reviews, etc.