Helping Weak Water Utilities Climb the Financial Ladder

Baietti, Aldo

doi:10.4324/9781315168272-19

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“…Additionally, bond covenants (formal terms between bondholders and utilities) will often specify certain reserve and debt service coverage requirements which thus drives revenue needs and may restrict financial interference from municipal owners. This latter requirement generates some degree of enterprise autonomy from municipal government owners (or "ring fencing") and is a strong indicator of good governance for water utility performance (Baietti et al, 2006;.…”

Section: Credit Rating Agencies Financial Institutions and Bondholdersmentioning

confidence: 99%

Assessing the Governance of Water Utility Financial and Infrastructure Management

2023

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The following is a set of policy recommendations for stakeholders related to the key findings detailed above. Additional detail and supporting conclusions are available in Chapter 8. Wisconsin PSCIncorporate utility capital investment metrics into ratemaking decisions on rates of return using a performance-based approach. The PSC could reference a utility's recent and historical record of capital investment, asset depreciation levels, and near-term capital spending needs when deciding on the rate of return in conventional rate cases. These metrics could be compared to capital investment benchmarks such as metrics from utilities with similar characteristics in a performance-based manner.Reform the approach to contributed assets in PSC ratemaking policies to increase capital recovery cashflow for certain types of utilities. The PSC should reconsider its current ratemaking approach to contributed assets that disallows contributed asset depreciation and returns on rate base from the revenue requirement for all utilities and especially those with high levels of contributions. A revised approach could consider the extent of contributed assets in a utility's asset base or utility size as both are key determinants of the observed negative impact.Develop policies to address negative impacts of exogenous shocks. Policy approaches such as temporary revenue adjustment mechanisms, state insurance programs, utility reserve ix requirements, utility insurance policy requirements, or other financial instruments would help temporarily smooth income during abnormal operating conditions.Bifurcate the approach to construction authorizations. A streamlined review process for the vast majority of routine capital projects would alleviate one of the biggest complaints utility managers and other stakeholders have about the PSC. It would also create more bandwidth for the PSC to focus on reviewing large, complex, or contested projects where construction authorizations add significant regulatory value.Enhance the performance benchmarking system. The PSC could enhance its current benchmarking system by applying statistical analysis to clusters of utilities determined by economy of scale and density characteristics. This would allow utility managers to better assess performance against benchmarks of peers that resemble their own characteristics.Shift the payment-in-lieu-of-taxes (PILOT) to a sales tax. A portion of the PILOT property tax incidence is falling on the utility itself rather than the customers as intended. Shifting to a sales tax could alleviate the issue and could be designed in a way that doesn't compromise the fiscal contribution from PILOT to local governments. Regulatory Policy Organizations (AWWA, NARUC)Reform contributed asset and rate of return policy guidance for publicly-owned utilities. Ratemaking policy guidance documents like the AWWA M1 Manual generally disallow revenue generation from contributed assets based on theoretical reasoning for investorowned utilities that is poorly adapted to publicly-owned utilities. The...

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Section: Credit Rating Agencies Financial Institutions and Bondholdersmentioning

confidence: 99%

Assessing the Governance of Water Utility Financial and Infrastructure Management

2023

View full text Add to dashboard Cite

show abstract

Helping Weak Water Utilities Climb the Financial Ladder

Cited by 1 publication

References 0 publications

Assessing the Governance of Water Utility Financial and Infrastructure Management

Assessing the Governance of Water Utility Financial and Infrastructure Management

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