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,. <br />The Municipal Utility has many issues to deal with relative to its <br />fiscal and operational health. Most decisions impact the utility's <br />'~ finances, which ultimately affect rates. The Municipal Utility is <br />~ concerned about how it will manage its rates and pricing pro- <br />gram to keep up with the changes in its operating environment, <br />send the correct price signals and be fair to customers. <br />~~ a <br />SC)LUTI.OI~ ~~~; <br />The Municipal Utility has decided it needs an overall rate strategy <br />to help guide its decision-making process going forward. The rate <br />strategy will provide direction for rate-related decisions. Both the <br />utility management and governing body will be involved in develop- <br />ing this strategy. The strategy is envisioned to be a list of core <br />rate-related principles including: <br />• Developing and maintaining afive-year financial plan <br />• Setting minimum financial ratios (i.e., debt service coverage, <br />debt/equity ratio, margins) <br />• Anticipating rate needs and developing appropriate rate <br />change transitions <br />• Developing an effective public rela- <br />tions program that supports <br />conservation, demand response and <br />other pricing approaches <br />• Addressing fee structure (i.e., new <br />connects, special services) <br />• Stating policy regarding competitive <br />pricing (i.e., goals compared to neighbor- <br />ingutilities) <br />• Defining methodology related to re- <br />liance on cost-based pricing <br />• Setting reserve fund policies <br />• Establishing rate rider guidelines <br />(i.e., fuel adjustments, regulatory re- <br />quirements) <br />• The strategy will be in writing and <br />adopted by the board to serve as an on- <br />going guide for the board and utility <br />management and as an educational tool <br />for new board members. By tackling is- <br />sues aspart of a rate strategy before they <br />arise, the Municipal Utility will be better <br />prepared to deal with its rate-related <br />challenges. <br />Finance Group of R.W. Bock, an SAIC company. <br />www.APPAnet.org SEPTEMBER 2009 27 <br />David Berg, P.E., is a principal in the St. Paul, Minn., office of R.W. Beck, <br />a SAIC company. He is national director of the Rates, Valuation and <br />G~ti ENGINEERS <br />