Increasing Water Costs

Background

Almost every community in the US has seen water and sewer rates rise dramatically in the past 10-15 years. Rising rates pose a particular hardship for many older people and for households with fixed or limited incomes. Several factors are responsible for the increase in rates.

Water infrastructure needs and funding—as evidenced by the lead contamination in the water system in Flint, Michigan, many of the nation’s drinking and wastewater systems are beginning to fail. Replacing water mains is extremely expensive—often about $100 per foot. To upgrade or replace aging water infrastructure and equipment, the Environmental Protection Agency (EPA) predicts the nation will need to invest $384.2 billion by 2031. A 2012 report by the American Water Works Association projects more than $1 trillion is needed over the next 25 years for replacement and expansion of water systems. In the face of these large needs, concern is growing that current funding from all levels of government and ratepayer revenues may not be sufficient to address these problems, let alone to meet the nation’s future demand for water infrastructure. Indeed, many water systems already cannot comply with federal water standards because they lack sufficient resources for necessary repairs and new construction.

Watershed quality—watersheds serve as drinking water sources; they also support recreational and economic activities such as fishing and manufacturing. It is therefore vital to maintain watershed quality by preventing the discharge of pollutants into rivers, lakes, and coastal areas. However, the EPA estimates that 850 billion gallons of untreated wastewater and storm water are discharged into the nation’s surface waters each year due to defects in wastewater infrastructure. These discharges reduce the quality of water sources across the nation. Furthermore, new methods of extracting oil and gas (e.g., hydraulic fracturing) may result in the contamination of watersheds.

Water scarcity—in comparison with the rest of the world, the US as a whole has plenty of freshwater. Supplies vary substantially by location, however, and scarcity may develop during severe droughts. At such times, the greatest risk is to areas without adequate drought plans or where the freshwater supply is already constrained. Additional stresses on the water supply—such as the depletion of groundwater sources, population growth, and competing demands for freshwater—have led to water shortages around the country. Other factors, according to the Government Accountability Office (GAO), are the potential effects of climate change. These include less precipitation, new runoff patterns, and greater usage due to higher temperatures. Under normal weather conditions, roughly 75 percent of state water managers expect freshwater shortages in the next ten years.

Increased demand—according to a GAO report, population growth—particularly in certain states where water supplies are already limited—strains water availability. The report cites data from the US Census Bureau projecting that the US population will increase by approximately 29 percent between 2000 and 2030. The western and southern regions are projected to experience the greatest growth in population and also have among the highest water withdrawal rates. Water used for thermoelectric power and for irrigation accounted for 49 percent of total withdrawals in 2005.

Consolidation and restructuring of small water systems—many small systems are faced with large expenditures to improve infrastructure components and/or come into compliance with government requirements and become financially viable. Such efforts tend to improve the safety and reliability of water service but can also result in dramatic price increases. Because of the rising cost of water, some large investor-owned water utilities are moving to acquire small private or investor-owned water systems. This consolidation trend is likely to continue over the next several years as the cost of water increases.

Water system security—the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (known as the Bioterrorism Act) amended the Safe Drinking Water Act. The Bioterrorism Act requires every community water system serving a population of more than 3,300 people to assess and report to the EPA how vulnerable that system would be to acts that could disrupt the reliable supply of safe drinking water. The law also lists actions that every community water system must take to improve the security of its system. According to the EPA’s 2011 Drinking Water Infrastructure Needs Survey and Assessment, the water systems that were surveyed identified $236 million worth of security-related needs, mostly related to major system-wide security projects.

Privatization—most water systems are publicly owned and operated. Some government officials and many executives of large privately-owned water companies believe that government should not be in the business of providing this essential service. At the same time, budgetary constraints have led to the neglect of some publicly-owned water systems; many are in need of major capital improvements. These factors are driving many publicly-owned water systems toward privatizing some or all of their operations. Privatization may improve levels of service in some instances, but it does not protect against monopoly abuse. Regulation is more important than ownership in achieving performance gains; even more important are efficiency practices and economies of scale. One area of concern regarding public-private partnerships is the trend toward long-term water contracts. Many privatization contracts last for 20 years. These long-term contracts may lack incentives for private companies to control costs and provide water services efficiently. They also may not be flexible enough to address new problems arising after the partnership takes effect. A recent study shows that privately-owned water systems charge rates 159 percent higher than public water systems.

Tenant-paid water—increasingly, property owners or landlords bill tenants for water and wastewater services separately rather than including these costs in the rent. Unfortunately for tenants, excluding water service from rent usually does not result in a rent reduction.

Most property owners or landlords who separate water and sewer costs from rent typically use one of the following billing and cost-allocation methods:

  • Submetering—submeters installed in each rental unit will measure a tenant’s exact water consumption. This method is the most accurate way for a landlord to allocate water costs, but water meters may be difficult or expensive to install in some buildings.
  • Ratio utility billing system—a ratio utility billing system (RUBS) assesses costs based on certain variables (e.g., unit size, number of tenants, or number of bathrooms). This approach can be problematic for consumers because it does not directly accord with each unit’s level of consumption. For example, a landlord using a RUBS might allocate the same water usage and water bill to an older person living alone in a two-bedroom apartment as to a family of four living in an identical unit, even though the family will almost certainly consume far more water.
  • Hybrid metering—some landlords measure a portion of each unit’s total water consumption and then use that amount in a formula to estimate overall water usage. Under this method a landlord might connect a submeter to the hot-water line of each rental unit and regard the hot-water measurement as an indicator of cold water usage.

Increasing Water Costs: Policy

Universal water service

In this policy: FederalLocalState

Regulators should develop least-cost water policies that will provide universal service and ensure adequate, potable, and affordable water for current and future users.

Water infrastructure needs and funding

In this policy: Federal

Congress should make sufficient funds available for states and municipalities to help defray the costs of increased water infrastructure needs.

Controlling water costs

In this policy: FederalLocalState

Regulators should consider consolidation, technological innovations, and other methods that would allow the water industry and regulators to realize economies of scale and thus control costs.

Reliability standards should be developed to allow utilities to prioritize the repair of specific infrastructure elements to maximize the efficient use of available funds.

Watershed resource management

In this policy: FederalLocalState

Policymakers, with help from federal agencies and input from all affected users of a water source, should engage in long-term integrated resource management to establish priorities concerning water quality and quantity within a watershed region.

Water conservation

In this policy: LocalState

State policymakers should develop and adequately fund a water conservation program that includes but is not limited to:

  • technical assistance to help local officials conduct comprehensive system wide water audits, water-use accounting, reporting, and leak-detection and repair programs;
  • the installation of water-conserving plumbing fixtures and highly efficient water meters in residential, municipal, and state-owned buildings; and
  • the establishment of a permanent, year-round public education program that utilizes public-private partnerships and all available media and school curricula, and includes information on water supplies, use, planning, and conservation.

State policymakers should also:

  • require all water suppliers to submit and periodically update their water conservation plans,
  • identify quantifiable goals for water conservation and require suppliers to incorporate these goals into their plans, and
  • require utilities to provide consumers with information on basic household conservation measures.

State and local policymakers should encourage and facilitate the public’s involvement in deliberations on alternative sources of water, such as reclamation and desalination.

Incentives for better performance and water quality in privatization contracts

In this policy: LocalState

Policymakers should consider including a list of incentives for better performance and water quality in any privatization contracts. Incentives could include shorter contract terms with built-in extensions, rather than a single 20-year contract; a provision that makes a percentage of the management fee contingent on performance; or the option for government to buy back the water system.

Consumer protections

In this policy: LocalState

Policymakers should adopt consumer protections and ratemaking practices that:

  • support the goal of affordable water;
  • minimize rate shock; and
  • establish fair billing practices, reasonable disconnection procedures, and budget billing plans as a basic offering from all service providers.

Policymakers should also:

  • adopt consumer protections that apply to submetered and estimated water and wastewater bills, including billing standards, limitations on billing and service fees, the right to inspect and verify bills, and disclosure of the billing method prior to lease signing;
  • ensure that all property owners and landlords of multifamily dwellings engage in best practices that minimize water bills, including leak repair and paying for common area usage; and
  • require landlords to use billing and cost-allocation methods that reasonably reflect each unit’s consumption.