Water systems across the country have approached drinking water affordability using different metrics and innovative solutions. While other parts of the country take on affordability at a local level, California is tackling this issue at the statewide level.
In 2012, California Governor Jerry Brown signed Assembly Bill (AB) 685, declaring water to be a human right. This enactment not only made California the first state to legally recognize this basic need, but highlighted challenges that needed to be addressed in order to fulfill the State’s commitment. This post focuses on 1) the affordability challenge which has received national attention as California tries to implement the first statewide low-income rate assistance (LIRA) program and 2) other proposed or passed California legislation related to water affordability.
Unlike your favorite TV show, college football, or even your cell phone, water is a truly vital part of life. However, many Americans may still not have affordable access to this necessity. The question of whether or not water is “affordable” in some communities is an ongoing debate. State laws, aging infrastructure, lack of funding, and many other challenges can limit a utility’s ability to address affordability concerns. However, some states have provided a framework for utilities in their state to address the challenges utilities face to provide affordable access to water for all. Customer Assistance programs (CAPs) are utility-sponsored programs that help provide low-income customers with affordable access to water through various discounts or other cost reduction methods. California, West Virginia, and Washington, discussed in detail below, currently have laws in place that enable water utilities to create CAPs.
Water pricing is a delicate art, as utilities often must balance competing priorities when setting rates. How can the utility set rates that ensure financial sustainability for the system while also balancing affordability concerns for customers? With any rate increase, the ability of customers with low income (sometimes on fixed income) to pay their bills in full and on time is a crucial consideration. Establishing an equitable rate structure benefits not only these ratepayers, but also the utility, which can now more confidently project revenues. Utilities employ several mechanisms to help customers afford and pay their bills. One mechanism is to develop a Customer Assistance Program that helps individual customers pay part of their water bills when they cannot afford to pay on their own.
Big News in the World of Innovative Water Rate Design
Last week, one of the most interesting water rate structures we’ve seen recently was narrowly voted down in a referendum vote. After several years of debate and campaigns to win the hearts and minds of rate payers, voters in the City of Davis, California very narrowly (51% versus 49%; only 264 votes apart) passed a measure that repeals changes to their water rates. One of the key features of the rate structure that would have otherwise been implemented was a Consumption-Based Fixed Rate.
Shadi Eskaf is a Senior Project Director for the Environmental Finance Center at the University of North Carolina, Chapel Hill.
Our research shows that water rates have been rising faster than CPI inflation in the past few years for hundreds of utilities, particularly after the financial crisis. In some states, however, there were also many utilities whose rates failed to keep pace with inflation.
From a rate-setting perspective, utilities that raised rates more frequently had a double advantage over utilities that raised rates only occasionally or rarely. First: the average annual rate increase was lower than the one-time rate increases of utilities that occasionally raised rates, reducing the rate shock that customers experienced when rates rose. Second: despite the lower average rate increases, utilities that raised rates more frequently accumulated, on average, a larger total increase in rates in a five-year period than utilities that raised rates only occasionally.