|
|
|
Ordering Information:
ORDER NUMBER: 90732
DATE AVAILABLE: Summer 1998
Printed Report |
PDF |
| Subscribers |
Order Report |
|
| Non-Subscriber |
N/A |
N/A |
PRINCIPAL INVESTIGATORS:
Margot Saunders, Phyllis Kimmel, Maggie Spade, and Nancy Brockway
OBJECTIVES:
The purpose of this study was to identify alternative methods of rate design, billing, and collection in order to address the gap between water prices and low-income households' ability to pay. These affordability models provide viable mechanisms to water utilities for realizing savings for their systems and reducing the political fallout from service terminations. These strategies respond to the problems caused by rising water rates while meeting both the standard principles of rate design and the legal requirements prohibiting unreasonable discrimination in rates.
BACKGROUND:
Water systems throughout the nation are experiencing rising levels of uncollectible and delinquent payments as water rates rise at a faster pace than incomes. The rising costs of meeting water safety regulations, often associated with basic infrastructure needs, have created a steep increase in water rates in many utilities over the past 10 years-a trend that is predicted to continue. These rate hikes mean that it is more common for the low-income segment of the residential customer base to be unable to pay utility bills on a timely basis. The inability to pay water bills in full and on time costs utilities money and creates significant hardship for low-income households. In the coming years-as environmental regulations, health and safety requirements, the expense of replacing aging infrastructure, and the steady pressure of inflation all conspire to drive up costs-more and more utilities will have customers with inability-to-pay problems.
HIGHLIGHTS:
The rate design models and alternative billing structures proposed in this study are designed to maximize a water utility's total revenue. Reducing rates for low-income households in order to make water bills more affordable will have both primary and secondary revenue impacts on a water system. The primary result will be an immediate reduction in income due. The secondary result will likely be a reduction in credit and collection costs and possibly an increase in income received. Because of the minimal difference between credit and collection costs and the gross cost to the utility of a reduced rate, the net monetary cost to the utility of an "affordability" rate may be minimal. The political and social gains to the utility may then completely offset the minimal cost remaining.
APPROACH:
The best method for a particular water system to address its affordability problem is dependent on the specific goals, resources, and needs of the system and its customers. This study developed five different rate structures to be considered as model affordability plans. Three of the models are based on programs that provide a discount on some part of the bill that would be available only to eligible low-income customers. Two of the model rate structures-"lifeline rates"-could be made available either to an exclusive class of low-income customers or to all residential customers. The idea behind lifeline rates is to encourage customers to conserve water and keep their usage below this level, thereby keeping their bills affordable. The research also investigated a number of other ways to make water affordable.
RESULTS/FINDINGS:
In addition to five rate structure models developed by this research, a number of other affordability methods were investigated including: budget billing, arrearage management plans, conservation assistance, and additional sources of assistance. Other issues such as conflicts between sewer and water rate structures and the appropriateness of certain charges for low-income customers were also investigated. The affordability models and proposals to address low-income customers' inability to pay will require the development of a consensus for action. Water utilities have not historically had to contend with the complex socioeconomic situation facing their low-income customers because for many decades, in most areas of the country, water has been a relatively inexpensive commodity. Water managers need to be able to prepare themselves and their constituencies for an orderly, rational introduction of needed responses to problems with low-income households' ability to pay.