Water Supply Shortages: Water Utility Regulatory Insights

The traditional water cost recovery and rate making process is based on the same process that is used to establish electricity rates. At the highest level, the process can be broken down into three main activities: determining revenue requirements, developing cost allocations, and conducting rate designs.

There are several major cost drivers that are driving rate case preparation for water utilities. Infrastructure improvements are estimated at $255B from 2009-2014 and will significantly increase prices. Regulatory updates are likely to lead to significant increases in the price of water even though conservation requirements may reduce the overall demand. Additionally, current rate structures do not accurately reflect the true cost of water which leads to overuse, waste, and a misunderstanding by users when rates are increased.

ScottMadden is continuing its series of reports on water supply management with a document that outlines the typical rate setting objectives, as well as an approach for applying new and innovative approaches to rate making and revenue generation needed to fund required infrastructure construction.

Additional Contributing Author: Jake Jacobi

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