How Rates Are Determined

First, it is important to note that we are nonprofit entity. Water and wastewater rates are intended to recover the full cost of operating the water and wastewater utilities. Unlike private sector corporations, we do not have shareholders or any similar elements with whom to divide surplus revenues. We do not divide profits among our executives. We are not motivated by market forces, but rather our customers. Our customers are also our bosses - the residents of Irving.

Rate Making
Although there are innumerable details in rate making, the concept is actually quite simple, we aim to break even. To determine how much to charge for water and wastewater services, we first project how much revenue we will collect next year if we keep the rates the same, including customer base growth.

Then, we project how much we will spend the next year through the public budgeting process. These expenditures consider all the costs to function each utility, including operations and maintenance expenses, debt payments, Lake Chapman expenses, future water resource development, and all other expenditure matters. Then, we generate a rate that will make the two, projected revenues and projected expenditures, break even. A detailed description of our project revenue and expenditures can be found in the Annual Operating Budget.

Projected Expenditures
Because of general inflation, costs for goods, services, and other factors, projected expenditures often rise from year to year, and as such, outpace the system’s customer base growth. In these cases, a rate adjustment is required in order to balance the budget. Management will make a recommendation for the amount and timing of the rate adjustment and the City Council makes the final rate decision.

Of course, it never happens that projected revenues end up exactly matching actual revenues for a given year. Unpredictable rainfall and human behavior make this impossible. The same is true of projected and actual expenditures. In the years that revenues are less than expenditures, the system draws on accumulated reserves to meet its cash and debt obligations.

In the years that revenues are greater than expenditures, revenues are reinvested in the system’s aging infrastructure, or are used toward securing future water rights, or in some other way that directly benefits the system. In any event, when the amount collected exceeds the amount spent, the benefit goes to you, the citizens of Irving.