March 5, 2013
Unpacking Planning and Financial Transparency
Previous Branding Updates have introduced the importance of making a compelling argument for investment and rate increases. The foundation for a compelling argument is trust in the person or organization making the argument. For utilities, building this trust (or brand) depends on providing meaningful transparency, especially with respect to planning and finances. In this context, meaningful transparency can be characterized as information that is both understandable by the audience and highly relevant to proposed investments or policy decisions. Sharing technical details with a non-technical audience may seem like transparency, but this doesn’t build trust.
Motivations and Standards are Relevant – This is because motivations and standards are what drive people to take action, make a change, or spend money: for example, a person taking public transportation to work every day because it’s less expensive, less damaging to the environment, and they can work while in transit. We can argue that these motivations relate to the personal standards of being smart with money, having concern for the environment, and being efficient with time. Understanding motivations and standards allows us to fully appreciate a situation or decision. With respect to planning and finances, utility proposals need to highlight the following types of information:
Planning Standards, Motivators
· Acceptable levels of risk related to water resources and water reliability
· Infrastructure-replacement and lifecycle-cost standards
· Both regulatory and internal water-quality and environmental standards
· Guidelines for addressing anticipated growth in the community
· Planned increases in operational efficiency
Financial Standards, Motivators
· Debt ratios (which impact the cost of borrowing money)
· Liquidity and cash-flow standards
· Maintaining financial reserves, and the logic behind recommended levels
· The desired level of debt, and logic behind this standard
· Costs/financial ramifications of delaying proposed actions or investments
Whatever the motivations and standards, they need to explain why the utility is recommending a specific course of action. Planners and chief financial officers are all too familiar with the issues above, but often the utility fails to provide the needed transparency. Presentations are better received and instill confidence when they begin with the pertinent motivations. And this can be done simply and briefly. Without this clarity and context, even policy makers familiar with the organization are hard-pressed to fully appreciate the utility’s proposal. Often, the unfortunate results are probing questions about why a proposal makes sense, confused enquiries about extraneous technical details, and ultimately erroneous conclusions about the urgency of the proposed investment.
The Bottom Line - The utility’s brand and the quality of the investment proposal have significant impacts on policy decisions, the performance and financial health of the utility, and ultimately quality of life in the community.