Water is essential for drinking, cooking, and basic hygiene and sanitation. Community health and prosperity depend directly on a sufficient supply of clean water.
In the U.S., there are approximately 50,000 community water systems providing water to households and businesses. These systems are both publicly and privately owned. Large municipal systems serve 87 percent of the population. Approximately 13 million rely on wells, and an estimated 1.6 million Americans do not have access to running water or indoor plumbing. According to the Environmental Protection Agency, about 40 percent of community water systems were not in compliance with at least one drinking water safety rule.
A relatively small number of large water systems—about 8 percent-- serve 80 percent of all customers. Ownership of community water systems takes several forms. Some systems are publicly owned, others are privately owned, and others are public systems managed by private contract. Publicly owned systems encompass municipalities, special districts, regional authorities, and federal or state government systems. Privately owned systems belong to entities that can range from homeowners associations and nonprofit cooperatives to investor-owned water companies. Tens of thousands of other types of public water systems include places like schools and campgrounds that own and operate their own systems. Regulations differ between community water systems and non-community water systems.
Almost every community in the U.S. has seen water and sewer rates rise dramatically in recent years. According to one study, the average water and sewer bill in the 50 largest U.S cities increased 31 percent between 2012 and 2019. Rising rates pose a hardship for many older people and households with fixed or limited incomes.
Consumer debt related to water and sewer bills is a growing problem. Water and sewer rate increases are driving up this debt, as well as inefficient or leaky plumbing that may be found in older homes and apartments. Household water and sewer debt can result in disconnection of service, and at worst, evictions and foreclosures. Landlords are often able to use disconnection of service as grounds for eviction. Municipal water systems can place a lien on a home for unpaid water bills, eventually resulting in foreclosure. Some jurisdictions are taking action to eliminate household water debt. Water debt will also accumulate due to expiring shut-off moratoria put in place due to COVID-19.
Several factors are responsible for the increase in rates.
Water infrastructure financing: The nation’s drinking water utilities need $472.6 billion in infrastructure investments over the next 20 years due to deferred maintenance, aging systems, compliance with federal and state regulations, and to account for growth. Concern is growing that current funding from all levels of government and ratepayer revenues may not be enough to address existing problems. Nor can they meet the nation’s future demand for water infrastructure. Sources of revenue for financing infrastructure include federal and state grants and loans, rate increases, sales taxes, bonds, and surcharges.
Water quality: Rivers, lakes, reservoirs, and groundwater serve as drinking water sources. It is, therefore, vital to prevent the discharge of pollutants into these sources of water. This includes prevention of stormwater runoff. Some municipalities are increasing rates, issuing bonds, or establishing a stormwater utility to finance necessary infrastructure for watershed protection.
Water conservation: Water scarcity can result in higher costs for water. Rate plans that charge higher rates at higher levels of usage can encourage conservation. However, that can harm households with inefficient appliances and leaky plumbing.
Consolidation and restructuring of small water systems: Many small systems are faced with large expenditures to improve infrastructure and comply with government requirements. Such efforts can result in dramatic price increases, especially in these smaller systems. To become financially viable, many small private or investor-owned water systems have consolidated. Or they have been acquired by larger systems. This often results in rate increases.
Privatization: Some publicly owned water systems have or are considering privatizing their operations. By some estimates, private water companies charge an average of 60 percent more than public providers for a similar amount of usage. Privatization does not ensure fair rates or improved service. Many privatization contracts last for 20 years. These long-term contracts may lack incentives for private companies to control costs. It may also deter them from providing water services efficiently. They may not be flexible enough to address new problems arising after the partnership takes effect.
Tenant-paid water: Sometimes, the bill for water and wastewater services goes to a landlord rather than the tenants. The landlord then allocates the costs among tenants. The allocation may not be based on actual usage. Sometimes, additional fees are added.
Most property owners or landlords who separate water and sewer costs from rent payments use one of the following billing and cost-allocation methods:
- 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. However, water meters may be difficult or expensive to install in some buildings.
- 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 allows some landlords to 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.
WATER AND SEWER: Policy
WATER AND SEWER: Policy
Universal water service
Water policies that provide universal service should be developed. They should ensure adequate, potable, and affordable water for everyone.
Universal service in water includes extending service to those communities that currently lack or have inadequate water and sewer service. Infrastructure financing should consider affordability and the additional needs of households with lower incomes.
Federal policymakers should allow states and localities reasonable flexibility in achieving national standards and goals for water quality. They should also require careful monitoring and strict accountability to ensure compliance with national standards.
Policymakers should determine what sources of financing are in the best interest of ratepayers and taxpayers. They should examine all potential sources, including rate increases, federal loans, the issuance of bonds, and new or increased local taxes.
Congress should allocate sufficient funds to states and municipalities to help pay for increased water infrastructure and security needs.
Water cost controls
Regulators should help the water industry realize economies of scale. They should consider consolidation, technological innovations, and other methods to control costs.
Reliability standards should prioritize the repair of specific infrastructure elements. This will maximize the efficient use of available funds.
Water resource management
Policymakers should establish long-term integrated resource management that ensures water demands for municipal, agricultural, and industrial uses are balanced with environmental protection and preservation of water quality.
Policymakers should develop a water conservation program. The program should be adequately funded.
Policymakers should only consider tiered rate structures that encourage conservation if they include an adequate amount of water at an affordable rate.
- technical assistance to help local officials conduct comprehensive systemwide 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.
Policymakers should provide 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 the government to buy back the water system.
Ratemaking and consumer protections
Policymakers should use rate cases to adopt water and sewer rates for private utilities. Municipal utilities should also use a process to set rates similar to a rate case review for gas and electric services.
Policymakers should establish consumer protections that include budget billing plans and reasonable disconnection procedures. High bills should be adjusted if they were caused by leaks and evidence of repair is shown.
Policymakers should prohibit evictions and foreclosures due to household water debt.
Policymakers should establish fair tenant billing and sub-metering practices.
At a minimum, the following principles should guide rate reviews:
- Rate proceedings should follow the traditional cost of service model.
- The utility’s revenue requirement should be based on just and reasonable expenses necessary to provide service and investments that are prudent and used and useful to ratepayers.
- The utility’s rate of return should be fair and based on current market conditions.
- Rates should be stable, predictable, and understandable, with costs allocated fairly among customers.
- New surcharges unrelated to water and sewer service should be prohibited.
- Lost revenue or decoupling mechanisms that keep utility water revenues constant for any drop in sales should be prohibited.
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.
Balancing goals and ensuring compliance
Policymakers should ensure water demands for municipal, agricultural, and industrial uses are balanced with environmental protection and preservation of water quality.
Federal policymakers should allow states and localities reasonable flexibility in achieving national standards and goals for water quality. They should require careful monitoring and strict accountability to ensure compliance with national standards.