Financial Management & Rate Structures Flashcards

A utility applies an inverted block rate structure. What is the PRIMARY purpose of this design?

Answer: Charge higher unit rates as consumption increases to encourage conservation

Inverted block rates increase the per-unit price at higher consumption tiers to discourage excessive use and promote conservation.

Which financial metric measures a utility's ability to cover annual debt service from operating revenues?

Answer: Debt service coverage ratio

The debt service coverage ratio (DSCR) divides net operating revenues by annual debt service to show whether the utility can meet its bond obligations.

Under the cash basis of accounting, revenues are recorded when:

Answer: Cash is actually received

Cash-basis accounting records revenues only when cash is physically received, not when the service occurs.

A utility's working capital is BEST defined as:

Answer: Current assets minus current liabilities

Working capital equals current assets minus current liabilities and measures the utility's short-term liquidity position.

Which rate design element ensures that customers who use no water still contribute to fixed infrastructure costs?

Answer: Minimum monthly charge or base charge

A minimum monthly or base charge recovers fixed costs (pipes, meters, billing) regardless of whether the customer uses any water.

When a utility issues revenue bonds, pledged security for repayment is typically:

Answer: Net revenues generated by the utility system

Revenue bonds are backed solely by the net revenues of the enterprise fund, not by taxing authority or general fund credit.

An 'equity contribution' in a utility capital financing plan most commonly refers to:

Answer: Internally generated retained earnings or reserves used for capital projects

Equity contributions are funds a utility provides from its own retained earnings or reserves rather than from debt or outside grants.