Financial Management & Rate Structures Flashcards
7 cards from real UMC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Management & Rate Structures flashcards as text
The 'test year' in a utility rate study refers to:
Answer: A historical or projected 12-month period used to determine revenue requirements
The test year establishes the revenue requirement baseline by capturing representative operating costs and capital needs for a defined 12-month window.
Which depreciation method allocates an equal expense amount each year over the asset's useful life?
Answer: Straight-line depreciation
Straight-line depreciation divides the asset's depreciable cost evenly across its estimated useful life, producing a constant annual expense.
A utility's 'rate stabilization fund' is PRIMARILY used to:
Answer: Smooth rate increases by accumulating reserves in low-cost years
Rate stabilization funds allow utilities to set aside surplus revenues during favorable periods and draw them down to avoid sharp rate spikes in difficult years.
In utility cost-of-service analysis, 'peaking costs' are typically allocated to customers based on:
Answer: Their contribution to maximum demand (peak usage)
Peaking costs are driven by the need to build capacity for maximum demand periods, so they are allocated proportionally to each customer class's peak demand contribution.
Which of the following is an example of a non-operating revenue for a water utility?
Answer: Interest earned on invested reserve funds
Interest income from invested reserves is classified as non-operating revenue because it does not arise from the primary service delivery function.
A utility calculates its 'days cash on hand' as 45 days. This metric primarily measures:
Answer: The number of days the utility could operate using only available cash reserves
Days cash on hand shows liquidity resilience by expressing unrestricted cash as a fraction of daily operating expenses.
Impact fees charged to new development must legally be:
Answer: Spent on capital improvements that benefit the fee-paying development
Nexus requirements and state law typically mandate that impact fees be used only for capacity-expanding capital projects that provide benefit to the new development paying the fee.