Friend and fellow WaterWonk G. Tracy Mehan III, a frequent contributor to WaterWired and executive director for government affairs at the American Water Works Association, sent me this piece The Quest for Affordable Water he wrote for the July-August 2022 issue of J. of AWWA.
It was long overdue for water rates to increase. With the inexorable aging of the infrastructure, an investment gap resulting from years of underfunding, and steady population growth, it was even inevitable for rates to increase eventually. But recent rate increases have exceeded inflation by multiples, and given the uneven distribution of income, the poorest and oldest customers experience the greatest difficulties paying their increasing water utility bills. This has led to calls for more customer assistance, bans on service shutoffs (a last and only resort for utilities), and cross-subsidies in rate design.
Most water systems are either embedded in municipal governments or governed by independent authorities, with members appointed by elected officials, so politics intrudes into rate-setting in ways not seen in private business decisions—hence, the salience of the affordability issue. The new Infrastructure Investment and Jobs Act (IIJA) is a historic, welcome development, especially its targeted support for disadvantaged communities. But more resources will be required to close the infrastructure investment gap. AWWA's 2012 report, Buried No Longer, identified an infrastructure investment need of approximately $1 trillion over 25 years for drinking water alone, and IIJA includes roughly $50 billion for water and wastewater projects. The $15 billion included in IIJA for lead service line removal is a solid down payment on this new federal mandate, but this is a fraction of what is needed. And the $9 billion for “emerging contaminants” will most likely be overtaken by regulations under the Clean Water Act and Safe Drinking Water Act. Some of these compounds may also be designated as “hazardous substances” for purposes of Superfund liability, which could drive up disposal costs of treatment residue and biosolids for utilities.
More federal support for the water sector is not guaranteed in the future. Congressional appropriations vary, while regulations are permanent. Water customers will remain the primary source of financial support for the utility sector under any realistic scenario. Besides being the right thing to do, mitigating the affordability problem is crucial to the aspirational goal of full- or even substantial-cost pricing in the utility sector. Failure to address the affordability problem will encourage political opposition to water rates necessary to support basic infrastructure and operations, especially during an inflationary spiral.
Utilities, states, and the federal government need to be proactive. However, states seem more focused on education and healthcare than on utility matters. And there are a limited number of water utilities with customer assistance programs, which is an area the sector needs to improve. As for the federal government, tax-exempt bonds, state revolving funds, the Water Infrastructure Finance and Innovation Act, and special appropriations for such things as lead service line replacement are helpful, but they generally require adequate rates to service the debt incurred.
Another factor here is that water utility customers lack the broader social safety net provided to other sectors. Grocery chains do not distort prices to subsidize low-income customers, and shoppers might be arrested if they walk out of the store without paying for their groceries. Mortgage companies and builders do not discount their charges to homeowners, and if homeowners quit paying the mortgage, the bank will foreclose on the house. But these sectors have food stamps, the Supplemental Nutrition Assistance Program, the Housing Choice Voucher Program, and Federal Housing Administration loans for those in need of assistance. For struggling customers of power utilities, there is a Low-Income Energy Assistance Program (LIHEAP). Nothing similar exists for water or wastewater customers.
The good news is that Congress authorized a one-time Low Income Household Water Assistance Program (LIHWAP) in the wake of COVID-19 through the American Rescue Plan. It has also provided for pilot programs and a federal study as part of IIJA but has yet to appropriate funds.
LIHWAP will no doubt differ considerably from LIHEAP since the scale of water utility operations is very different from that of power companies. AWWA and the Water Utility Council have yet to take a position on a permanent LIHWAP program, but whether from a utility at the local level or the federal government at the national level, assistance needs to be provided to our low-income customers by means of separate programs or subsidies that do not interfere with or distort adequate water rates essential to the future of safe drinking water and public health.
Enjoy!
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