The Increasing Need to Address Customer Affordability

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Stacey Isaac Berahzer is a Senior Project Director for the Environmental Finance Center at the University of North Carolina, and works from a satellite office in Georgia.

Water prices are rising faster than any other utility service nationally. Of course, there is good reason for this – the industry has a large backlog of infrastructure needs.

While options such as public private partnerships represent promising areas for financing this backlog, it is mainly water customers who will be writing monthly checks to pay for these infrastructure projects.

With all indicators pointing toward a continued increase in water bills, the historic underpricing of water seems to be slowly righting itself. But, with this comes a greater need for utilities to consider the affordability issues of low income customers. Defining customer affordability has been a tough nut to crack. Perhaps the most quoted affordability threshold is 2.5% of median household income (MHI), but this “rule of thumb” has been criticized for blanketing small pockets of poverty within a census block. On the other hand, the same threshold is cited as sometimes pressuring a water utility to keep rates too low, while many of the utility’s customers can easily handle a higher rate. The bottom line is that defining affordability at the national scale is not easy!

At the utility level, programs addressing customer affordability can take different shapes, including:

  1. Lifeline rates – where a minimal amount of water is offered at a relatively low cost to all customers
  2. Bill payment assistance for low income customers
  3. Discounts for senior citizens
  4. Customer conservation assistance – for example, the City of Atlanta’s Care and Conserve program provides plumbing repairs as part of its affordability program

The bigger question seems to be, “how are such assistance programs administered and funded?” The answer lies in part on the dexterity of the utility, and in part on state policies.

In many states, a utility’s rate revenues are restricted from being used to finance these types of assistance programs. In North Carolina, water utility revenues are not to be used to even administer these programs. Hence, a popular approach for North Carolina customer assistance programs has been for the water utility to partner with a local charity or human services organization to administer the program. This has the main advantage of keeping water utilities free of having to verify personal income. (A side benefit could be that the partnership with a local reputable charity might also help boost a utility’s public relations.)

Collage of Affordabilty Program Images

In a state like Georgia, a cursory look suggests that there are fewer direct customer bill payment assistance programs. This may be partly attributable to the “gratuities” language in Article 3, Paragraph VI of the state’s constitution. Water utilities seem leery about “donating” money to a human services organization, even if those funds will be used to assist with customer water bill payments.

Whether the utility administers the program directly or not, funding these assistance programs can be prickly. In cases where revenues from rates are not an option, utilities like the Orange Water and Sewer Authority (OWASA), NC have been creative in using bill round-up programs, where customers have the choice to designate the additional portion of their checks to hardship customers. Similarly, in Cary, NC utility customers can select to have a recurring fixed donation on their bills. Other utilities have successfully obtained outside grant funding for their assistance programs. In cases where cell phone and internet providers rent use of the water utility’s towers/tanks, the rental income has become a discrete pot of money that has replenished some assistance programs’ budgets. Another potential funding source for affordability programs that is gaining some traction is service line insurance.


6 Comments

  1. Kara Millonzi

    May 31, 2012 at 10:22 am

    Stacey received a question about her post and asked me to respond. The question asked whether the prohibition against using utility funds in North Carolina to fund public assistance programs applied to counties and cities, as well as public authorities. The answer is yes. Counties, cities, and public authorities all are prohibited from using utility proceeds to fund even the administration of an assistance program for utility customers. Counties and cities, however, have the option to appropriate general fund monies to fund such assistance programs for low or moderate income customers as well as senior citizens.

  2. Instead of being scared off by the Gratuities Clause of the Georgia Constitution, utilities in Georgia should take a closer look at their affordability programs to see if they can be structured in a way to avoid gratuities prohibited under the Georgia Constitution. Often these programs provide a benefit to the utility that merely needs to be identified and if possible, quantified.

  3. The City of Atlanta recently took a hard look at its Care and Conserve program and ordained legislative findings to support the use of water/wastewater revenue to fund its affordability and conservation program. See http://citycouncil.atlantaga.gov/2013/images/adopted/0506/13O0119.pdf

  4. Kenny Waldroup

    June 13, 2013 at 7:46 am

    I have two questions: One..are such unusual utility funding sources such as telecommunications space rental on water tanks a viable source for a bill pay assistance program? Then my second question, is their an acceptable industry standard for bill collection verse debt write off… our bill collection activities are also part of the equation. Thanks!

  5. Stacey Isaac Berahzer

    June 14, 2013 at 4:19 pm

    Kenny,

    If by “viable” in your your first question you mean “possible,” then the answer is “yes.” We have seen many cases where utilities use the funds from leasing to cell phone companies as a funding source for bill pay assistance and other customer affordability programs. This type of income related to cell phones is *relatively* new for the water industry, and it has coincided nicely with the increased need for customer affordability programs. Another factor that makes water utility towers/tanks rental particularly appealing to affordability programs is that it is a non-operating revenue source. (This is particularly important in states like North Carolina.) But, if by “viable” you mean “sufficient” then I think the answer is probably “no.” In most cases, especially with larger water utilities, other funding sources would probably be needed to supplement a robust customer affordability program.

    Regarding your second question, I am not aware of a specific industry standard on bill collection vs. debt write-off. I would encourage some of the other utilities that see this post to comment on any practices they have seen in this area.

    Thanks for your questions Kenny!

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