G. Tracy Mehan III and Ian D. Gansler Paper: 'Addressing Affordability as a Necessary Element of Full-Cost Pricing'

G. Tracy Mehan III just sent me this paper that he and and Ian D. Gansler just oublished. Here is the email he included:

Attached please find our article which appears in the current issue of the Journal AWWA (American Water Works Association).  We argue that affordability programs are essential to further full-cost pricing in the water utility sector.  It is both a humanitarian and political imperative.

I welcome your comments-good, bad or otherwise.

Download Affordability_Full-Cost_Pricing_JAWWA%20O+2017

Introduction 

In its most recent strategic assessment of the water industry, Black & Veatch (2016) observed that “those working in the water industry have realized a truth that is now reaching a broader audience: Water is woe- fully underpriced.” As readers of Journal AWWA will recall, AWWA published its report, Buried No Longer: Confronting America’s Water Infrastructure Challenge (AWWA Water Utility Council 2012), identifying a trillion dollars of investments needed for both replacement and expansion of drinking water infrastructure over two-and-a-half decades.

Yet the sector faces a paradox: water is underpriced, but it’s still expensive (Grigg 2016). As the Black & Veatch report (2016) notes, “issues of afford- ability” have made rate increases problematic in many communities, requir- ing water utilities to address “challenging social issues around this matter,” thrusting the issue into the political arena as well. This is entirely understand- able given that, on average, water rates are increasing several times the rate of inflation, sometimes astronomically, especially in communities under a consent decree to compel an overhaul of their legacy combined sewer over- flow systems. It does not matter if the cost drivers come from the wastewater, drinking water, or stormwater side of the cycle—the ratepayers who bear these costs typically see them as a single water bill, and a rising one at that. 

Conclusion

Focusing on the distributional impacts of essential rate increases on ratepayers in need is both a human- itarian and a political imperative— the former because it is the right thing to do and the latter because ignoring these citizens’ concerns gen- erates pushback from the commu- nity and elected officials. Affordabil- ity programs and CAPs must be viewed as an integral, even necessary, part of the financial plan for every water, wastewater, and stormwater utility. It is all the same ratepayer.

If you want to comment, please do so on this blog and I will be sure to get it to Tracy.

Enjoy!

The Weekly Water Summary will return next week.

"Fortunately, there is a movement in the water sector to adopt affordability or consumer assistance programs." - from the article

Comments

[Michael P Jackson]

Water pricing is the issue. The user fee model is at fault and I ask why create a system of economic discrimination when a viable alternative exists. Outlined in my paper A Water Monetary Standard: an economic thesis MPRA Paper 924 published by the IWA the system would fully fund water and sanitation infrastructure permanently, lower the cost of living and insures local economic growth. Viable for Public, Private, and P3 systems abandoning the User Fee modelis about infrastructure,economic and health index stability.