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bjbj Scripts for the Online Tutorial Videos for the North Carolina Water and Wastewater
Rates Dashboard Video 7: The Financial Benchmarks tab In this tab, you can assess the financial
health of the utility in this case, the Example Utility using eight indicators. This can only
be done for local government owned utilities. North Carolina requires all local governments
to submit their finances to the Local Government Commission annually. Data for non-profit utilities,
such as Bell Arthur Water Corporation, are not available and this page is shaded out
(in fact, a small handful of government owned utilities may also see a shaded out page because
data were not available at the time the dashboard was produced). Using the data on each local
government s Water and Sewer Enterprise Fund, as submitted in their annual report to the
LGC, we are able to provide you these eight financial indicators. Again, there are lots of reds, yellows and
greens. In general, you want to avoid the reds and aim for the greens. Many of these
benchmarks are natural benchmarks (e.g.: you want revenues to exceed expenditures) but
some are slightly subjective (e.g.: the days cash on hand triggers). Underneath each gauge
is a More Info button that, if you click on, reveals information about each gauge: how
it is calculated, what it is trying to show in plain English, and how many utilities fall
in different benchmark groups.
The eight gauges are grouped into 5 categories. Ability to cover operations and debt service
Measures of liquidity Cost Recovery Net Transfers Condition of Physical Assets This video will
be too long if I try to explain each gauge in detail. The explanation of each gauge is
shown in the popups that appear when you click on More Info . Please read the text. It s
what I would read out to you right now anyway. In this video, I ll go over some notes that
are not explained in the More Info popups. First of all, the Cost Recovery gauge is identical
to the one shown in the Rates Comparison tab. This was already described in a previous video.
Recall that this gauge includes depreciation in the operating expenses. For an analysis
looking at just operating revenues to operating expenditures (costs for day to day operations
and maintenance only), use the first gauge: Op. Rev / Op. Expend. The Debt Service Coverage
Ratio is a vital gauge. Funding agencies use this information to assess the utility s eligibility
for state funds to extend waterlines or expand water treatment capacity. The 2008 Drought
Bill requires that such utilities MUST be recovering the cost of operations, maintenance
and principal and interest payments on long-term debt before being eligible to apply for state
funds. This is measured by the Debt Service Coverage Ratio. Equally as important, this
is a ratio that rating agencies look at closely when setting their ratings, which has a direct
impact on financing terms the local government can secure for capital investments. The Local
Government Commission in North Carolina pays attention to several of these gauges, including
Quick Ratio. Rating agencies also look at this. Generally speaking, you want your utility
to have sufficient liquidity to be prepared in case of any unexpected out-of-pocket payments
that need to be made. Net Transfers show how much was transferred from other local government
funds into or out of the Water and Sewer Enterprise Fund. Sometimes indirect payments appear as
transfers in this gauge. For example, if billing for water services is handled by the town
s Finance department and not within the Public Utilities department, one fund may be indirectly
paying the other fund for these services and these are sometimes captured as transfers,
depending on how they are reported to the LGC. If the Net Transfers number appears too
high, check your financial statement and see if these transfers may really have been indirect
payments. In general, it is recommended that the Water and Sewer Enterprise Fund be completely
independent of other funds, and be self-sufficient. The two gauges estimating the condition of
physical assets are greatly dependent on the accuracy of the depreciation schedule maintained
by the local government s accountants. Truly, these are estimates of the asset s depreciation
and condition from an accountant s point of view. In real life, though, many of your assets
may be in much poorer condition than what is estimated here. In fact, the Average Age
of Infrastructure gauge is almost invariably underestimating the true average age of your
infrastructure, because many of your older pipes conditions are not being captured by
the depreciation calculations. The Asset Depreciation gauge may be a slightly more accurate indicator.
In either case, these two indicators should never supersede the judgment of the operators
and managers who are more familiar with the actual condition of the assets, both above
and underground. A quick look at Example Utility s indicators that the utility is generally
in good financial health. It is important to check and track these indicators over several
years in order to ensure that the utility is continuing to make good financial decisions.
Let s switch to Low Rates, Low OR . Different story once more! There are many red dials.
The utility is not recovering enough revenue to pay for even day-to-day operations and
maintenance, let alone capital expenses and depreciation, has low liquidity, and aging
infrastructure! My eyes are hurting from the red, so I ll switch back to the Example Utility.
In the next video, we will go over the Characteristics tab. PAGE \* MERGEFORMAT qiaYQI hhqB gdP%
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