Analyzing water usage across 10 irrigation meters to create a dynamic financial payback model for improved decision making
The Problem
Irrigation water within the Park City limits is incredibly expensive and most HOAs spend a significant portion of their budget on irrigation water. For one of the Park Meadows HOAs that we manage, the water expense is a whopping 17% of their budget ($100K/year). To make matters worse, the water rates keep increasing so water is more expensive without the benefit of greener grass. Model HOA set out to find out if this HOA could reduce their water expense without decreasing the water they use (owners love green grass) and/or investing in a xeriscaping/irrigation system replacement given the incredibly high payback periods on such projects.
The Process
Model HOA rolled up their sleeves and dug into the minutia of Park City water billing to determine if there was a way to reduce water expense by working with the city on the levers that drive billing. Each month, Park City Municipal bills for a “base charge” plus a “base tier usage charge” plus an “overage tier usage charge”. The base charge is the same each month, but differs depending on the meter pipe size. The larger the pipe size, the more gallons you are allotted at the base billing tier before you are billed at the overage tier (64% more expensive). Model HOA set out to build a financial model to determine if replacing the meters (other upsize or downsize) would drive savings across any of the 10 water meters. To do this, they analyzed the actual invoice charges (base charges and usage charges) over three-year period and then created scenario models to see what the charges would have been at the different meter pipe sizes. They then calculated the payback for each scenario.
The Outcome
Model HOA’s analysis revealed that there were savings opportunities for six of the ten meters, but that the payback periods were extremely long due to the fixed costs of replacing the meters (excavation, water vault replacement, meter purchase, etc.,) that the HOA would incur along with the higher charge for the monthly base rate. The Board decided to continue to track water usage each year as rates continue to rise (using the handy dynamic model that Model HOA created) to determine when the payback would make sense.
Pro Tip
Your management company should always look for ways to add value by researching and analyzing problems from different angles. Oftentimes a management company will “pay the bills” and execute business as usual. This is usually because they don’t have the analytical experience (or more importantly, the time) to push the envelope.