In the establishment of water rates, specifically in making projections, allowances for escalation of cost in relation to power, fuel, labor, and even foreign exchange are integral components. There are, however, some instances when abrupt increases in cost of these items are incurred and are not covered by these allowances for escalation, the experience of which might result to losses in operations. In such cases, adjustment of rates becomes necessary which should be considered as interim measure until the next water-rate increase where its effects can be reflected in the cashflow projection. Illustrated in this subject are standard formulas to be used for computing the adjustment of rates.

1. POWER-COST ADJUSTMENT

This formula is applied when water is pumped using electricity.

PCA = (PCa - PCb) (Bb/Ba)

Where:

Pca = Power-Cost Adjustment in P/cu.m.
PCa = Current Power Cost per cu.m.
PCb = Base Power Cost per cu.m.
Ba = Total Water Currently Billed in cu.m.
Bb = Total Water Produced in cu.m.

2. FUEL-COST ADJUSTMENT

This formula is applied when water is pumped using fuel.

FCA = (FCa - FCb) (Bb/Ba)

Where:

FCA = Fuel-Cost Adjustment in P/cu.m.
FCa = Current Fuel Cost per cu.m.
FCb = Base Fuel Cost per cu.m.
Ba = Total Water Currently Billed in cu.m.
Bb = Total Water Produced in cu.m.

3. LABOR-COST ADJUSTMENT

This formula is applied in the instance of mandatory wage increases imposed either through wage orders released by the National Labor Relations Commission (NLRC) or Congressional action.

LCA = ALC - ELC

Where:

LCA = Labor-Cost Adjustment in P/cu.m.
ALC = Adjusted Labor Cost in P/cu.m.

New Salary
= ---------------- x Official Rate
Revenues

ELC = Existing Labor Cost, in P/cu.m.

Current Salary
= ------------------- x Official Rate
Revenues

4. FOREIGN-EXCHANGE COST ADJUSTMENT

This formula is applied when the costs of the materials being used by the district, which are imported, are affected by the fluctuation of the foreign exchange.

FEA = (OER)ER - ER
Where:
FEA = Foreign-Exchange-Cost Adjustment in P/cu.m.
OER = Official Exchange-Rate Ratio, P/US$ (Using CB fig)

Current Exchange Rate (Using CB figure)
= ---------------------------------------------------------
Previous Exchange Rate (Using CB figure)

ER = Effective Rate

Total Sales, P
= ------------------------
Total Billing, cu.m.

5. ILLUSTRATIVE EXERCISES

The following sample exercises will serve as guide in the computation of adjustment of rates.

a. Power-Cost Adjustment

Computation:

Pumping Total Total Cu.M.
Month Cost Production Billed

November P219,541.47 390,000 cu.m. 175,804 cu.m.
December 241,889.86 390,000 cu.m. 175,804 cu.m.

P219,541.47
PCb = ------------------------
P390,000.00 cu.m.

= P0.56/cu.m.

P241,889.86
PCa = ------------------------
P390,000.00 cu.m.

= P0.62/cu.m.

Bb = 390,000 cu.m.

Ba = 175,804 cu.m.

Adjustment:

PCA = (PCa - PCb) (Bb/Ba):

PCA = (P0.62 - P0.56) (390,000/175,804)

= P0.06 x 2.218

= P0.13/cu.m.

 

Application to Water Billing:

Example A : Residential Connection using 25 cu.m.

PCA = 25 cu.m. x P0.13

= P3.25

Example B : Commercial Connection using 150 cu.m.

PCA = 150 cu.m. x P0.13

= P19.50

Residential Connection Billing (25 cu.m.)

Minimum Charge - P 44.80
Commodity Charge:

11-20 cu.m. 24.50
21-25 cu.m. 12.75
--------
Total Water Bill P 82.05
Add:PCA 3.25
--------
Total Bill P 85.30

Commercial Connection Billing (150 cu.m.)

Minimum Charge P 89.60
Commodity Charge:

11-20 cu.m. 49.00
21-30 cu.m. 51.00
31-50 cu.m. 708.00
--------
Total Water Bill P897.60
Add:PCA 19.50
--------
Total Bill P917.10

Check:

Increase in Power Cost = P241,889.86 - P219,541.47

= P22,348.39

PCA Billing = P0.13 x 175,804 cu.m.

= P22,854.52

b. Fuel-Cost Adjustment

Computation:

Pumping Total Total Cu.M.
Month Cost Production Billed

November P306,667.00 931,965 cu.m. 746,175 cu.m.
December 350,00.00 931,965 cu.m. 746,175 cu.m.

FCb = P306,667
----------
931,965 cu.m.

= P0.329/cu.m.

FCa = P350,000
----------
931,965 cu.m.

= P0.3755/cu.m.

Bb = 931,965 cu.m.

Ba = 746,175 cu.m.

Adjustment:

PCA = (FCa - FCb) (Bb/Ba)

FCA = (P0.3755 - P0.329) (931,965/746,175)

= P0.0465 x 1.248

= P0.058 say P0.06/cu.m.

Application to Water Billing:

Example A: Residential Connection using 25 cu.m.

FCA = 25 cu.m. x P0.06

= P1.50

Example B : Commercial Connection using 150 cu.m.

FCA = 150 cu.m. x P0.06

= P9.00

Residential Connection Billing (25 cu.m.)

Minimum Charge P44.80
Commodity Charge:

11-20 cu.m. 24.50
21-25 cu.m. 12.75
----------
Total Water Bill P82.05
Add: FCA 1.50
---------
Total Bill P83.55

Commercial Connection Billing (150 cu.m.)

Minimum Charge P89.60
Commodity Charge:

11-20 cu.m. 49.00
21-30 cu.m. 51.00
31-150 cu.m. 708.00
---------
Total Water Bill P897.60
Add: FCA 9.00
---------
Total Bill P906.60
=======

Check:

Increase in Fuel Cost = P350,000 - P306,667

= P43,333

FCA Billing = P0.06 x 746,175 cu.m.

= P44,770.50

c. Labor-Cost Adjustment

Salaries before Wage Order = P189,013.00
Salaries after Wage Order = 239,411.00
Effective Rate = 5.23
Total Water Sales = 904,902.00
Total Cu.M. Billed = 172,870.00 cu.m.

Computation/adjustment:

LCA = ALC - ELC

LCA = P239,411 P189,013
------------- x 5.23 - ------------- x 5.23
P904,902 904,902

= P1.383 - P1.092

= P0.291/cu.m.

Application to Water Billing:

Example A: Residential Connection using 25 cu.m.

LCA = 25 cu.m. x P0.291

= P7.275

Example B : Commercial Connection using 150 cu.m.

LCA = 150 cu.m. x P0.291

= P43.65

Residential Connection Billing (25 cu.m.)

Minimum Charge P44.80
Commodity Charge:

11-20 cu.m. 24.50
21-25 cu.m. 12.75
------------
Total Water Bill P 82.05
Add: LCA 7.275
------------
Total Bill P89.325

Commercial Connection Billing (150 cu.m.)

Minimum Charge P 89.60
Commodity Charge:

11-20 cu.m. 49.00
21-30 cu.m. 51.00
31-150 cu.m. 708.00
-----------
Total Water Bill P897.60
Add: LCA 43.65
------------
Total Bill P941.25
=======

d. Foreign-Exchange Cost Adjustment

Current Exchange Rate = P 28.00/US$
Previous Exchange Rate = 23.00
Total Water Sales = P904,920.00
Total Cu.M. Billed = 172,890.00 cu.m.

Computation/adjustment:

FEA = (OER) ER - ER

FEA = P28.00 P904,902
-------- x (P904,902/172,890) - ---------
P23.00 172,890 cu.m.

= P1.21 (5.23) - 5.23

= P1.09/cu.m

Application to Water Billing:

Example A: Residential Connection using 25 cu.m.

LCA = 25 cu.m. x P1.09

= P27.25

Example B : Commercial Connection using 150 cu.m.

LCA = 150 cu.m. x P1.09

= P163.50

Residential Connection Billing (25 cu.m.)

Minimum Charge P44.80
Commodity Charge:

11-20 cu.m. 24.50
21-25 cu.m. 12.75
----------
Total Water Bill P82.05
Add: LCA 27.25
----------
Total Bill P109.30

Commercial Connection Billing (150 cu.m.)

Minimum Charge P 89.60
Commodity Charge:

11-20 cu.m. 49.00
21-30 cu.m. 51.00
31-150 cu.m. 708.00
------------
Total Water Bill P897.60
Add: LCA 163.50
------------
Total Bill P1,061.10
=======