Utility Revenue and Drought


Droughts will have a negative effect on utility revenue if they are severe enough to require water use restrictions. This can have a significant impact on the financial stability of a utility. Water providers can plan for these contingencies by evaluating the impact drought can have on revenue and assessing exposure to drought risk. This can inform financial policies, such as determining appropriate levels for cash reserves.   

The Alliance for Water Efficiency’s Sales Forecasting and Rate Model offers an accessible and user-friendly way to accomplish this. Specifically, the Sales Forecasting and Rate Model addresses drought in two ways.

  1. The model contains a Drought Rate Adjustments worksheet that allows the user to evaluate the impact of various drought stages on sales and revenue. This worksheet can also be used to design revenue-neutral rates. 
  2. The model’s Revenue Simulation Module includes the impact of drought restrictions on sales volumes and revenues over a five-year planning horizon. The Revenue Simulation Module also includes likelihoods of drought events.

Visit the Sales Forecasting and Rate Model page  on Financing Sustainable Water to gain access.