www.efc.unc.edu

Financial management challenges faced by southeastern U.S. water utilities

Shadi EskafSenior Project Director

Environmental Finance Center at the University of North Carolina, Chapel Hill

UNC Water and Health Conference: Science, Policy and Innovation

October 30, 2012

Chapel Hill, NC

CONTEXT

Southeastern United States

Southeast’s 8,700 Community Water Systems Serving 58.5 Million People

Alabam

a

Florid

a

Georg

ia

Kentuck

y

Miss

issip

pi

North C

arolin

a

South C

arolin

a

Tennessee

0

500

1,000

1,500

2,000

2,500

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Large Systems Serving >10,000 People

Small Systems Serving <10,000 People

Percent of Population Served by Small Systems

Nu

mb

er

of C

imm

un

ity W

ate

r S

yste

ms

Source: EPA’s 2011 SDWIS data analyzed by the Environmental Finance Center at the University of North Carolina

Large citySmall town

Rural countyRegional government

Multi-system, private corporation

Homeowners associationMobile home park

Church

School

Not-for-profit association

Contracted out operations

Who’s in Charge?

Independent private owner

Financial Management at a Local Level

Utility Manager / Finance Director

Governing Body

Regulators

Finance Committee / Customer Advisory

PanelCustomers

• Residential• Commercial• Industrial• The Big-Wig• Low-Income• Jane Atyour Door• The Mayor• Outside town limits

Media

Legal

Creditors

Ratings Agency

Finance Staff / Consultants

Sometimes Difficult to Raise Rates

Found did not need to adjust rates

16% Lowered rates1%

Found needed to raise rates, but Governing

Board did not approve any rate increase

7%

Found needed to raise rates, but Governing

Board only approved a partial rate increase

12%

Governing Board approved the pro-

posed rate increase fully60%

Other3%

Don't know1%n = 260

Source: NCLM/EFC 2010 Results of the 2010 North Carolina Water and Wastewater Financial Practices and Policies Survey.

DEMAND

Demand is Declining…

… Sometimes By a Lot

DEMAND AND RATE STRUCTURES

Broken: Fixed vs. Variable

Depen

ds o

n

usag

e

Revenue and Expenses for Charlotte-Mecklenburg Utilities in a Given Year

Source: CMU Director Doug Bean’s presentation to the Charlotte City Council on December 1, 2008.

The Variable Charge Portions of All Customers’ Bills in FY2010

Cary 91.1%* (FY2010)

Charlotte 82%** (FY2008)

Raleigh 75.4%* (FY2010)

OWASA 75%** (FY2012)

Durham 73.5%* (FY2010)

Cape Fear 59%** (FY2012)

Sources: * Billing records from utilities analyzed by the Environmental Finance Center at the University of North Carolina, ** reported by utility

COST RECOVERY

Cost Recovery

High Rates Alone Won’t Save a Utility

Source: EFC/NCLM 2012 Water and Wastewater Rates and Rate Structures in North Carolina

RATES AND INCOME

Household Income is Declining

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011$ 0

$ 10,000

$ 20,000

$ 30,000

$ 40,000

$ 50,000

$ 60,000

Statewide Median Household Income in Southeastern United States in 2011 Dollars, 2000-2011

AlabamaFloridaGeorgiaKentuckyMississippiNorth CarolinaSouth CarolinaTennessee United States

Source: U.S. Census Bureau, Table H-8.

Poverty is Rising

Source: U.S. Census Bureau Current Population Surveys.

2,000 2,001 2,002 2,003 2,004 2,005 2,006 2,007 2,008 2,009 2,010 2,011 0.0

5.0

10.0

15.0

20.0

25.0

Percent of People in Poverty in Southeastern United States by State, 2000-2011

AlabamaFloridaGeorgiaKentuckyMississippiNorth CarolinaSouth CarolinaTennessee

But Rates are Going Up, Rapidly

All Over the Southeast

Growing Affordability Concerns

<= 0

.25%

0.25

- 0.

5%

0.5

- 0.7

5%

0.75

- 1%

1 - 1

.25%

1.25

- 1.

5%

1.5

- 1.7

5%

1.75

- 2%

2 - 2

.25%

2.25

- 2.

5%

> 2.

5%

0%

5%

10%

15%

20%

25%

30%

35%

Water

Wastewater

Total Bills in One Year as % of MHI of Community Adjusted to 2008

Perc

ent o

f NC

Util

ities

Source: NCLM/EFC 2010 Water and Wastewater Rates Structures in North Carolina.

2010

Growing Affordability Concerns

<= 0

.25%

0.25

- 0.

5%

0.5

- 0.7

5%

0.75

- 1%

1 - 1

.25%

1.25

- 1.

5%

1.5

- 1.7

5%

1.75

- 2%

2 - 2

.25%

2.25

- 2.

5%

> 2.

5%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Water

Wastewater

Total Bills in One Year as % of MHI of Community in 2010

Perc

ent o

f NC

Util

ities

Source: NCLM/EFC 2012 Water and Wastewater Rates Structures in North Carolina.

2012

Local Disparities

INFRASTRUCTURE CONDITION

Infrastructure is in Bad Shape

Source: ASCE www.infrastructurereportcard.org

Southeast’s $50 Billion Drinking Water Capital Needs Estimate

Source: EPA 2007, Drinking Water Infrastructure Needs Survey Assessment.

Alabam

a

Florid

a

Georg

ia

Kentuck

y

Miss

issip

pi

North C

arolin

a

South C

arolin

a

Tennessee

$ 0

$ 2,000

$ 4,000

$ 6,000

$ 8,000

$ 10,000

$ 12,000

$ 14,000

$ 0

$ 500

$ 1,000

$ 1,500

$ 2,000

$ 2,500

$ 3,000

$ 3,500

Drinking Water 20-Year Capital Needs Estimates in 2007 (billions of $)

Bill

ion

s o

f $

$ /

Se

rvic

e C

on

ne

ctio

n

OUTCOMES

If you do it wrong…

• Jefferson County, AL, home to Birmingham

• Largest U.S. local government bankruptcy to date

• $4.2 billion in debt for sewer project

– >$16,000/household– >36% of annual income for half of all

county households

If you do it right…

BENCHMARKING

EFC’s Water & Sewer Rates Dashboards

http://efc.unc.edu/RatesDashboards/

www.efc.unc.edu

Environmental Finance Center at the University of North Carolina

School of Government, Knapp-Sanders Building

CB #3330

Chapel Hill, NC 27599-3330

USA

Shadi Eskafeskaf@sog.unc.edu 919-962-2785