FAMS: Optimizing tough financial solutions for utility managers

February 25, 2020 David Hyder

Developing tools and leveraging expertise to help communities address funding challenges in a strategic and cost-effective manner

 

Local government and utility managers don’t have it easy. Why? Because they face the task of addressing complex challenges while meeting the growing need for inclusion and full disclosure. And the room for error is shrinking—budgets are tight, utility fees and tax rates are high, and infrastructure needs are increasingly urgent. Plus, these challenges are compounded by the fact that much of our infrastructure was built decades ago and is reaching the end of its useful life.

The complexity is real: projects and programs must be prioritized, go and no-go decisions must be made, staffing and operational issues must be addressed and funded. Every need must be met within the constraints created by every other need. Given the tremendous reinvestment needs and limited availability of funds, the decisions around how best to deploy a community’s resources has never been more important.

To meet this challenge, our team has developed tools based upon hundreds of years of combined expertise to help communities address funding challenges in a strategic and cost-effective manner. Our team of financial experts understands that the success of any enterprise is often judged on how well it avoids financial turmoil while continuing to invest in its assets and delivering great service.

Our approach? We focus on helping government and utility managers respond to these operational needs. We simplify complex issues, maintain a focus on core principles, and make it easy to draw correct conclusions and communicate them. 

 

Utility managers don’t have to feel like the money is going down the drain. Enter FAMS.

 

FAMS: Low utility rates without performance decline

Our Financial Analysis and Management System (FAMS) helps local governments identify cost solutions without sacrificing the sustainable financial performance communities need. How? By focusing on three key actions:

  • Identify difficulties in advance
  • Analyze the universe of options
  • Plot an explicit path to achieve prioritized objectives

Our financial plans result in an actionable, long-range strategy for adjustments to utility rates. We focus on smooth, predictable rate adjustments to reduce customer impacts. Utility managers are empowered by knowing that their proposed rate increases are set at the lowest possible levels and that customer impacts have been recognized in the analysis. 

_q_tweetable:We simplify complex issues, maintain a focus on core principles, and make it easy to draw correct conclusions and communicate them._q_

To help highlight our experience, let’s look at a city in Florida that needed to build a reverse osmosis water treatment plant. The plant, of course, had a large ($70 million) price tag. So, we applied our FAMS model and identified the need for borrowing money through long-term debt as the best way to minimize rate adjustments.

With this knowledge, the local government called a referendum to formally consult with community members—a process required for long-term debt of this magnitude. The result? Our client learned that most of the community was debt averse. We used FAMS in live meetings to show stakeholders that utility rates would need to increase by approximately 50% for four years if the city were to cash fund the project. After that time, the rates could be adjusted down, but the high bill impact would be unpalatable those first few years.

The analysis clearly showed that with the correct borrowing arrangement, modest increases of 4% annually would pay the bills. Intergenerational equity was built by recovering the costs over time from both present and future users who would benefit from the plant over the next several decades. Check out a sample FAMS control panel below:

 

FAMS control panel shows projected rate increases and financial performance of a utility.

 

Financial models are standard in today’s utility financial planning tools. Almost every consultant has one—and for good reason: it’s an excellent and flexible analytical tool that can be customized quickly for client needs. But ours is no ordinary model. We’ve spent years perfecting customized coding that allows us to quickly find the optimal solution for funding projects and sustaining operations at the lowest possible cost to rate payers.

FAMS contains years of data embedded in customized modules, and our scenario management tools make the task of finding the best financial path as simple as possible. Financial modeling is one thing. A powerful optimization process that finds the best results possible for unique situations—that’s another.

 

Aging infrastructure doesn’t have to break the bank. FAMS can help utility managers make smart decisions when it comes to investing in their systems.

 

A custom service from Stantec

Through FAMS, our team has developed custom algorithms that quickly find the optimal mix of debt and cash funding for capital projects, including a smooth and predictable plan for rate increases. This allows us to find the best and most affordable plan possible for utility rate payers.

Beyond a utility rate plan, FAMS calculates and tracks financial performance metrics. Whether our clients need to keep an eye on cash reserves, monitor coverage ratios, or balance affordability, our team can include the key financial metrics and ratios as part of our standard reporting outputs.

Nowhere else can you find such integration of the capital and financial planning processes with robust scenario management. For any given capital plan, we can determine the optimal capital funding plan and the annual rate adjustments needed to support it. Or, we can determine the annual capital funding amount available within a rate plan that is limited by political realities or affordability constraints.

I’ve been proud to offer this service to our valued clients for years. But now, I’m excited to offer an enhanced service via the cloud, allowing for 24/7 access by multiple users simultaneously.

For more information about how our financial services team and our FAMS can assist your community, reach out me at david.hyder@stantec.com or visit us at https://www.stantec.com/fams.

About the Author

David Hyder

Out of Washington, DC, David Hyder helps communities plan for the future of their utility programs. As a principal in our financial services practice, he draws upon his more than 17 years of financial planning expertise to pinpoint potential road blocks—and provide creative solutions.

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