January 31, 2017

The Affordability Battle

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How to Maintain Infrastructure Without Compromising Affordability
There’s a lot we don’t agree on; however, there’s one thing we can all say is true—everyone deserves access to clean water. Drinking water and wastewater utilities have taken on the responsibility of providing clean drinking water and to uphold public health standards in neighborhoods and communities. Unfortunately, there’s always a trade off: utilities have to invest in a variety of innovative technologies and infrastructure to ensure they are up to date with current drinking water standards. In order to pay for these investments, utilities typically rely on customer revenues, which can raise another problem—affordability.

Why Are Water Rates Rising?
According to Circle of Blue’s annual water pricing survey, the average monthly water utility bill for a household using 50-100 gallons per person per day rose nearly six percent in 30 major U.S. cities in 2015 and continues to increase in 2016. This trend is due to a variety of different factors, with the largest being aging infrastructure. Major national events involving water quality, such as the water crisis in Flint, Michigan and the D.C. Water Crisis, demonstrate the serious health threats aging infrastructure can cause for water systems. Rising water rates are generally a result of financing necessary aging infrastructure improvements. For example, the City of Baltimore created a three-year plan to increase rates by up to 33 percent in order to repair crumbling infrastructure, which would leave the municipality debt free at the end of the process. Like Baltimore, many utilities nationwide recognize the urgency of improving aging infrastructure, but have no way of independently funding these projects. As a result, the financial burden is passed onto the consumer, including the many Americans still struggling with economic fallout from the great recession in 2008. In order to reduce the financial load on consumers, many utilities have created customer assistance programs (CAPs) to engage disadvantaged communities and ensure that clean water is still affordable for all individuals.

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Who Receives Assistance
Customer assistance programs are designed for customers who consistently struggle to pay their water utility bill. The United States Environmental Protection Agency published a “compendium” of CAPs, which provides utilities with options available to alleviate the issue of affordability. The remainder of this post is a summary of programs outlined by the EPA. According to the Compendium, eligibility is based on subjects such as income, disability, temporary hardship, age, and Veteran status. However, out of 365 active CAPs in America, over half are low-income based programs. Most utilities will set an income threshold or look at water bills exceeding a percentage of income to determine eligibility. Typically, CAPs are developed on a utility level basis and each provide slightly different accommodations. The following include customer assistance programs discussed by the EPA: 1) discount bills, 2) flexible terms and 3) temporary assistance programs.

Customer types in need of affordability

Figure 1. According to the EPA Compendium, the majority of customer assistance programs are geared towards low-income households, followed by hardship and seniors. Image provided by a study conducted by the EPA Water Infrastructure and Resiliency Finance Center

Types of Assistance Based Programs

Bill Discount
Bill discount accommodations are usually long-term reduction of a household’s water bills for individuals who are struggling to consistently pay. These programs are beneficial in that they can be tailored to a consumer’s specific needs, but the revenue impact may be greater compared to other types of CAPs because assistance is long term. An example of a bill discount program is the American Water H2O Help to Others Program. Although it is offered in a multitude of cities and towns nationwide, it is specific to each water utility’s needs. In Pennsylvania, American Water customers receive an 80 percent bill discount and a grant of up to $500 for those at or below 150 percent of the poverty line. Comparably, New Jersey American Water customers receive grants up to $500 and a 100 percent discount on their monthly fixed fee service charge for consumers at or below 200 percent of the poverty line. Each utility was able to use the bill discount program to fit the utilities’ clientele.

Flexible Terms
In the Compendium, flexible terms help customers pay their water bill through media including forgiveness, or the partial alleviation of old debt, bill timing, or switching from quarterly to monthly billing, and leveled billing, such as bill payment plans. Flexible terms pose fewer legal or policy barriers that allow implementation of these programs to be administratively efficient and low-cost, despite the fact that forgiveness of debt can reduce revenue. A drinking water municipality in Tallahassee, Florida offers customers a leveled billing program called Budget Billing. The utility averages water bills to prevent peaks and dips throughout the year. They do this by totaling the previous 12 months of water usage and spreading the average monthly bill evenly throughout the following year, with the addition of 10 percent to arrive at a monthly figure to prevent a consumer from significantly underpaying in the event of dry conditions. The difference between actual payment and budgeted payment is then calculated and over or underpayment is rolled over into the next year’s billing plan.

Temporary Assistance
Temporary assistance programs, commonly referred to as emergency assistance, are short-term or one-time assistance to prevent customers from disconnecting from a utility after hardship, such as death or job loss. This type of program helps customers in their greatest time of need and has smaller revenue impacts because they are short-term, but can easily become long-term if limits are not upheld and are administratively straining because of specific, concentrated assistance. An example of a temporary assistance program is offered by Portland Water Bureau, which provides one $150 crisis voucher per year to consumers. The Kansas City Board of Public Utilities also offers a one-time credit of up to $500 every 12 months to help homeowners facing hardships such as divorce or health emergencies. Eligibility is based on those customers not having missed a water utility payment within the last year.

Affordability supported by Customer Assistance Programs

Figure 2. Out of 377 CAPs provided by U.S. drinking water and wastewater utilities, 155 were bill discount programs, followed by 98 flexible terms programs and 87 temporary assistance programs. Image provided by a study conducted by the EPA Water Infrastructure and Resiliency Finance Center

Why We Need Customer Assistance Programs

Customer assistance programs are crucial when dealing with rising water rates. Aging infrastructure poses a serious health concern for drinking water and wastewater utilities. In order to keep up with water mandates, the price of improvement falls into the hands of the consumer. To manage this financial burden, utilities must continue to create efficient ways such as assistance programs to ensure all individuals have access to clean water.


Andrea Sospenzo is a guest contributor and is a sophomore at the University of North Carolina. Andrea is the Outreach Assistant for the Environmental Finance Center.

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