Have Your Utility Rates Kept Up With the Times?

By Scott A. Miller, CPA, Partner, February 9, 2012
Articles: Utilities Related, Latest News

Three Umbaugh Rate Studies Examine the Trends

First in a series

From 2007 to 2011 the cost of electricity increased more than 19%, the cost of gasoline went up nearly 18% and medical care costs increased nearly 15%.  Did utility rates and charges for municipally owned utilities in Indiana keep up with those trends?  And, if so, how does your utility compare to others?

These are reasonable and responsible questions to ask. 

Because Umbaugh performs hundreds of rate studies in our role as a financial advisor to governmental entities in Indiana, every few years we step back and take a broad look at the trends across the state.  We have been compiling periodic rate studies for municipally owned water and sewer utilities for quite some time.  The just-issued 2012 reports analyze the rates of 350 water utilities and 358 sewer utilities, making them our most comprehensive rate studies ever.  We added a new study this year with the analysis of 63 communities’ stormwater rates.  Complete copies of each of these studies are available to our clients and friends.

In the next few issues of Footnotes we will summarize the findings from these three studies.

Factors that impacted water and sewer rate changes

Since we issued our last comparative rate studies in October 2007, the world has seen dramatic changes affecting day-to-day operations of the communities in which we live.  The economic downturn due to the financial market meltdown caused municipalities to face tough decisions resulting from increased job loss, job relocation and businesses closing. 

The federal government, with a stated goal of stimulating employment while investing in infrastructure, passed the American Recovery and Reinvestment Act of 2009, which injected billions of dollars back into the country.

At the local level, this Act created attractive lending rates for capital improvement projects and pushed up the timetable for numerous water and sewer projects which otherwise might have started many years later.  As a result, municipalities invested in projects that had a direct impact on the community general funds and utility rates and charges.

State legislation during this time period created a strain on local governments.  House Enrolled Act 1001-2008 placed a cap on property taxes.  Since property owners are paying fewer dollars in property tax, municipalities had to scramble to change their operations to function with less revenue.  As a result, municipalities increased utility rates and charges to ensure these operations were self supporting.  

Local governments were also faced with increases in operating expenses. Many communities continue to report significant increases in the cost of employee health insurance as well as increases in the cost of purchased power, fuel and other items.  These increases — coupled with the costs associated with improvement projects — contributed to the increases in water and sewer rates and charges throughout the state.

In our next issue, we’ll summarize the changes to water rates.

If you would like a copy of Umbaugh’s comprehensive rate studies for water, sewer or stormwater utilities, please contact us at footnotes@umbaugh.com.

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Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at footnotes@umbaugh.com.