Describe the trends and assess the utility’s performance

DESCRIBING WATER UTILITY PERFORMANCE: THE CASE OF BROWN COUNTY

BACKGROUND

You are a newly appointed county manager of Brown County, which is large suburban jurisdiction covering 1500 square miles. Reviewing the county budget by department you notice that infrastructure costs for water utilities comprises a large percentage of the public works department’s annual budget.

The Division of Public Works is the largest department in Brown County and the water utilities department in the Division of Public Works serves approximately 41,952 water customers.  The utilities department currently operates 482 miles of water main with six water pump stations. The department also oversees 12 water storage facilities with a combined capacity of 67 million gallons.

You decide to embark on a performance measurement exercise of water utilities to help public works set a course to monitor operating efficiency and to justify potential capital expenses.

PERFORMANCE MEASUREMENT: WHAT ARE WE MEASURING?

As a first step toward performance assessment, you decide to examine the operating ratio of the water utility. This measure represents the total costs for operation and maintenance of the water distribution system as provided by the accounting division of Public Works divided by the total revenues generated from water purchased by the public from the county utility department. Therefore, costs are expressed as a percent of total revenue. Hence an operating ratio of .20, or 20% (move the decimal two places to the right) indicates that operating and maintenance costs comprise 20% of operating revenue. A higher operating cost percentage indicates that operating expenses are increasing relative to revenue. Conversely, if the operating ratio is decreasing, expenses are decreasing, or revenue is increasing, or some combination of both.

WHAT IS “GOOD” PERFORMANCE?

To establish if a performance measure is “good” it needs to be compared to a standard or best practice results established by an independent professional association within specific industries. In the case of water utilities, the American Water Works Association (AWWA) establishes bench marking guidelines. AWWA, using data gathered from suburban counties throughout the U.S. similar to Brown County, established the top quartile for operating ratio at 45%. According the AWWA, this benchmark indicates financial efficiency of water operations.

ASSESS HOW THE WATER UTILITY IS DOING

The performance target goal for Brown County is .45 or 45%. Review the descriptive analysis of the operating ratios for FY 2019 and FY 2020.  Describe the trends and assess the utility’s performance.

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