Utilities Concerned For Affordability

A recent investigation now suggests that a major concern for providers of water and

wastewater services in the United States is 'affordability.' Affordability has always been an issue for consumers but some newly released information reveals some surprising trends. Personal income has actually declined for the first time in the US since the 1950s as consumers have experienced negative annual 'real' growth in personal income. And when personal incomes decline, raising rates for water and wastewater services becomes even less popular.

Declining personal income trends now coincide with a persistent and increasing need for investment in water and sewer plant and facilities. Many utilities provide ongoing services to customers using infrastructure that is in serious need of replacement or upgrade. Failure of this infrastructure can lead to major service disruptions, damage to residences and businesses and even to local waterways. Recognizing this increasing need, the US Conference of Mayors recently issued a report predicting significantly increased levels of spending on water utility infrastructure. According to the Conference, this spending could be as much as a four-fold increase over current levels.

What constitutes true 'affordability' is based on multiple definitions, but the EPA holds that a utility fee is unaffordable if it is greater than 2.5% of median household income. This baseline measurement is interesting when taken into context with the way water is used and water rates are determined. Older homes in less affluent neighborhoods - presumably with lower income levels - have also been presumed to consume lower volumes of water and therefore would pay less on a monthly basis. This water use model also held that affluent customers would simply consume more and would therefore pay more.

The argument is often made that affluence equates to higher water usage, and this has been one rationale used to argue for increasing unit prices for increased usage levels (i.e. inclining block rates). However, that argument is many times based on a false premise. In Milwaukee, for example, research found that water usage was highest in older neighborhoods and found an inverse correlation between household income and water usage, the lowest incomes had the highest usage (Milwaukee Wisconsin Journal Sentinel, July 17, 2010).

Relatively higher usage in older neighborhoods is very much a possibility in every community due to newer homes being constructed under newer building codes with more stringent plumbing requirements that tend to conserve water; older homes were not subject to those codes and have older plumbing fixtures that tend to use more water (including more sewage thanks to older toilets and sinks).

So, while there is increasing pressure to increase water and sewer rates to pay for very expensive infrastructure replacements, the burden on customers is also becoming more severe in relative terms as their own personal incomes decline. Older neighborhoods with lower household incomes could actually be using more water than originally thought, and therefore the impact on those customer bills is even more pronounced. It is very possible that affordability in your community may be a more difficult thing to measure than just comparing the average utility bill to the median household income (the method the EPA uses).

by: Jason Mumm

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