The last few months of 2014 and the start of 2015 saw several articles like this one focused on water bills rising faster than other utility bills or increasing at an increasing rate. The cited worry of course is affordability. Affordability stands as a complex issue, but one that needs context in order to be correctly understood.
Just to be clear, this article does not address affordability from the US Environmental Protection Agency (USEPA) measurement perspective. I will have a subsequent post that deals with the USEPA’s measure of affordability and the countermeasure for affordability developed by the American Water Works Association, Water Environment Federation and the US Conference of Mayors. Back to the issue at hand.
Affordability naturally raises social equity issues. With some creative thinking and hard work, rate designs can mitigate the impact on some minimal level of water consumption. An example would be creating a new block of consumption for users using 1,500 gallons a month. “Lifeline” rates, which are common for telecommunications services but usually need statutory authorization, are another possibility. Yet another option could be using a “round up” program common in electric utilities where customers can voluntarily round their bill up to the next dollar value and the excess helps subsidize the bills of those who are less fortunate. These represent just a few ideas to grapple with water bill affordability.
Water rates increasing at an increasing rate and outpacing rate increases for other utility services certainly raise alarm bells, especially from the social equity standpoint. I submit, however, that we also need to review the increases through a lens of absolute dollar increases. A 25% increase in a $25 monthly water bill comes out to a $6.25 monthly increase in water rates, or $75 per year. In contrast, a $6.25 monthly bill increase for electric service would only be a 4.1% increase in a $150 monthly bill. Such an increase in electric rates would hardly draw criticism from people as an affordability issue.
Let’s deviate from the hypothetical and look at an actual, proposed electric rate increase here, where the typical customer would see a $7.63 monthly increase in its electric bill in the utility’s proposed 5.6% overall revenue increase (see Verified Direct Testimony of Kelly M. Huntington at 10:19; the utility proposes a rate design change, so the $7.63 figure does not necessarily translate to a 5.6% rate increase). The case was filed on December 29, 2014, so the information is fresh.
In the article about the rate increase, there’s not a single reference to affordability. Not one. Opponents have taken issue with the rate design (by moving cost recovery into a fixed charge rather than a variable energy component, detractors claim the rate design inhibits conservation), but again, no mention is made of affordability. Electric utilities know they need to recover costs and aren’t bashful asking for cost recovery. In a well-run water utility that regularly increases its water rates to keep pace with cost increases, I believe water rates would likely avoid large percentage increases and keep the increases to a more manageable level for its customers. Unfortunately, water utilities too often fail to seek full cost recovery and that just escalates the cost of a future rate increase.
What I’m aiming at here is the dual notion that somehow water rates at their present levels represent the correct or true value for water service and that customers expect water service to be unrealistically inexpensive. We’ve unfortunately become accustomed to cheap water, and that colors our perceptions of the true cost of water service.
Government subsidies of the past hid the true cost of water. Rather than collecting water utility costs in the monthly bill, the costs of the infrastructure to deliver water service or treat sewage were hidden in our taxes and then received back in a grant from the government. Now that the pool of grant money has evaporated, that money must come from somewhere and the water bill presents the natural home for those costs to be housed. Even low cost borrowings available from government-funded state revolving fund programs cloud our view of the true cost of water.
Exacerbating the problem, water professionals too often exhibit an inferiority complex when talking about water bills. Typically, electric, telecommunications, including cell phone and cable, and natural gas utility bills are all significantly higher than combined water and sewer bills – sometimes 3 and 4 times as much or more. Water professionals need to continuously educate their customers about what it costs to deliver water and sewer service. Only when customers understand - and it’ll take a long time and a lot of continuous customer education – how much it truly costs to deliver the services will they accept that water has been underpriced for too long.
In a well-run and efficient utility, there should be no shame in raising water and sewer rates when infrastructure needs and expense increases dictate. Utilities providing electric, natural gas or telecommunications services certainly refuse to be bashful when discussing their fiscal needs. It’s time for water utilities to stand up and advocate more effectively for the true cost of water and the need for water-related infrastructure. Of course, some water utilities already engage in this behavior, but more need to start. By not staking out their ground on necessary rate increases, water utilities acquiesce in the narrative that affordability is a different question for water utilities than it is for electric, gas or telecommunications utilities.
If we adjust our lens on water bill affordability, we see that water utilities can unchain themselves from the narrative that water service is inexpensive. Water utilities need to be more aggressive in advocating for rates that maintain the financial and technical (yes – you need the rates to invest in your technical capabilities) viability of their utilities. By acquiescing in the narrative that water is cheap, water utilities set themselves up for greater future problems than they’d have if they solved those problems today with a rate increase that allocates money to solving those problems.