Utility Rates: Long-Term Forecasts Should Reflect Uncertainty

While Solid Waste and Wastewater follow many best practices in their long-term forecasting, past forecasts have underestimated future rate increases. This is particularly true for Wastewater’s capacity charge, which is levied on new connections to the wastewater system. The current capacity charge is about 10 times higher than was forecast in the 1999 Regional Wastewater Services Plan Operational Master Plan. There is a great deal of uncertainty associated with long-term rate forecasts, and neither agency presented future rates as a range of possible outcomes in order to reflect this uncertainty.

We recommend that Solid Waste and Wastewater conduct sensitivity analysis around key assumptions, and present long-term rate forecasts in a range of possible rate outcomes.

We will be conducting a second phase of this audit to review Wastewater’s rates model in detail. Wastewater’s rates model is very complex, and the second phase of the audit will review the logic and calculations of the model to ensure that its outputs are consistent with county policies. The Auditor’s Office performed a similar review of Solid Waste’s rates model in the past.

Together, Solid Waste Division (Solid Waste) and Wastewater Treatment Division (Wastewater) raise about $527 million per year through rates paid by customers. The customer rates pay for the operations of and capital improvements to the solid waste and wastewater disposal and treatment systems. Long-term forecasts of customer rates provide guidance to the County Council when considering major capital improvement programs proposed by the agencies, as major capital programs can have a significant impact on future rates. The purpose of this audit was to assess the accuracy of long-term rate forecasts by these agencies and identify the reasons for any inaccuracies.