Guest author Peiffer Brandt is the Chief Operating Officer at Raftelis Financial Consultants.
An 82% rate increase. That’s what the Milford (MA) Water Company has proposed to cover the costs of a new $25 million treatment facility. Rates in Milford will increase from $2.69 per CCF to $4.94, and the monthly service charge will increase from $12.96 to $23.77. From Detroit to New Orleans, Los Angeles to Atlanta, water bills are on a trajectory to become more expensive with each passing year. Evidence from around the country suggests that this phenomenon is both universal and undeniable.
For the purposes of this blog, we have chosen to use the term “water bill” to be inclusive of water, wastewater, and stormwater charges. Part of the rationale for this is that people tend to be sensitive to the end impact of rate increases on their personal finances, rather than the changes to the rates themselves. Additionally, the water bill total often includes additional fees for sanitation, conservation initiatives, fire protection, etc., so a water bill is much more than just a bill for water service.
The water industry has known that rates (and, therefore, water bills) have been increasing significantly for some time. When it was published almost two years ago, the 2010 AWWA/RFC Water and Wastewater Rate Survey showed that rates were increasing almost 2% faster than the CPI annually. As such, water bills are becoming a meaningful expense to many families. This is due to both the rise in the magnitude of bills and the stagnation of household income, which is causing water bills to be discussed more outside of the industry.
On September 28, USA Today had a front page article that examined increasing water rates across the country. Generally, the USA Today article was clearly written and accurate. Within the article, the author provided some explanations for the increases and for the differences in increases among utilities. The graphics showed the percentage increase in water charges for a customer using approximately 7,500 gallons a month for 100 municipal utilities between 2000 and 2010. Unfortunately for the people that just look at the graphics and don’t read the article, the impression garnered from the graphic is likely to be that water rates are increasing significantly with no rhyme or reason. The graphic did not convey that the nominal increases may not be that significant, or that for one utility a 50% increase may have been a greater nominal increase than a 100% increase for another utility. The narrative mentioned that declining per capita consumption was impacting water rates, but it did not mention that due to declining per capita consumption, customers are not seeing the full impact of rate increases because they are using less water.
Perhaps even more than on a national scale, water bills have an impact on local news and politics. A Google News query of “water rates” returned more than twenty articles dealing with water rate increases that had been written within the last 24 hours. In several articles published within the last week, water bills are expected to play a significant role in local elections, with one City Council candidate even indicating that he got into the race due to increases in his water rates. In reading through the comment sections of articles heralding higher bills, such as those in Milford, it is clear that citizens are beginning to feel the financial strain of the increased rates.
The 2012 AWWA/RFC Water and Wastewater Rate Survey will be published in the next few months. It will include data from more than 300 utilities and will provide additional insight into the continuing increases in water and sewer rates, and ultimately the water bills. The Survey will also include narrative that puts these increases more fully into perspective.