Utility forecasting
Build next year's water, electric, gas, and sewer lines from what actually happened, not from a guess.
Utility forecasting means projecting next year's electric, water, gas, and sewer lines from what the association actually spent and what the utility's current rate shows, not from last year's budgeted number increased by a guess. Check actual usage against actual dollars spent, then layer on any rate change the utility has already announced.
Start from actual spending, not the old budget
A common shortcut is to take last year's budgeted utility line and bump it by a flat percentage. That carries forward any gap that already existed between what the board planned to spend and what the association actually spent, invisibly, year after year. If the electric line was budgeted at $36,000 but the association actually spent $40,000, starting from $36,000 repeats the same shortfall before a single rate change is even considered.
Pull the actual dollars paid for each utility from the prior year's financials, not the budget worksheet, and use that figure as the starting point.
Pick a method, and know what it does
Two established techniques apply directly to a utility line. Incremental budgeting takes the prior period's actual spending as a base and adjusts it by increments, fast to prepare but liable to carry forward a charge nobody has questioned in years. Zero based budgeting starts every line from zero and requires it to be justified again, slower, but it is what surfaces a leftover irrigation-timer charge on the electric bill for a well pump that was swapped out two seasons ago.
"the budgeting process starts from a base of zero, with no reference being made to the prior period's budget or actual performance" versus "the budget is prepared by taking the current period's budget or actual performance as a base, with incremental amounts then being added for the new budget period."
Source: Comparing budgeting techniques (Incremental v ZBB), Association of Chartered Certified Accountants
Most boards do not need zero based rigor on every line every year. Applying it to utilities specifically, where meters and equipment change, is where it earns its extra time.
Separate a usage problem from a rate problem
A utility bill can rise for two different reasons, and each calls for a different response. If usage climbed, the pool pump ran longer, a leak went unfixed, that is an operational question for the manager. If the rate went up and usage held flat, no amount of conservation fixes the budget line; the forecast simply needs the new rate applied to actual usage. How often a provider changes its rate, and whether your association is on an individual or a bulk account, varies by provider and by property. Check the utility's most recent rate notice or bill before finalizing the number, rather than assuming an inflation-style percentage applies.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
Last year's utility budget was $36,000 for electric, but the association actually spent $40,000. This year the utility announced a rate increase on top of that. What should next year's forecast start from?
The board wants to question every utility line item, including a leftover irrigation-timer charge from a well pump that was replaced two years ago, before setting next year's budget. Which budgeting approach does that?
This year's water bill rose 15 percent. The property manager confirms usage stayed flat; the utility raised its rate. What should next year's forecast reflect?
Sources
- Comparing budgeting techniques (Incremental v ZBB), Association of Chartered Certified Accountants
Budgeting
Next, see how a full year of actual spending, not just one utility line, should shape the budget you build. Read Historical spending analysis.
Utility rates, how often a provider changes them, and whether your association is billed on an individual or a bulk account vary by provider and by property. Check your utility's most recent rate notice and your own meter setup before finalizing this line.