Water affordability: How can utilities help their most vulnerable customers?

Affordability of water services is a broad issue. At its core, it is about a customer’s ability to pay for water services in addition to other essential items such as food, housing, and medical bills. Our team has been discussing the metrics and factors for water affordability and how to make these challenges for customers less of a tidal wave of payment decisions and enhance affordability of services for all.

Who does this impact?

Water affordability can affect anyone at any time. This can include one-time affordability issues due to job loss or short-term disability. Or it could be a regular issue for some, such as seniors on a fixed income.

The costs for utilities to operate their water systems and to make infrastructure investments have outpaced growth in customers’ incomes. We have a discrepancy between customers’ abilities to pay based on their incomes and how much costs of utility services have increased over time. Our team is hard at work trying to not only understand the metrics that are used to measure affordability but also to know the impact of cost increases on those metrics.

What are the ways we measure affordability?

Over the last few years, industry and utility professionals have focused on new means to measure affordability. Poverty levels, unemployment, and participation in other government programs are examples. When working with water utilities, we ask questions such as what percentage of your service area is below the federal poverty level? We evaluate these metrics using U.S. Census Bureau data to determine to what extent that community might have issues with water affordability.

Historically, the main metric used to gauge affordability is the Residential Indicator—the total household bill divided by median household income. The result is a percentage that indicates the financial impact on customers. In February of this year, the U.S. Environmental Protection Agency (EPA) published revised guidelines to comply with Clean Water Act obligations. This guidance helps us focus on the lowest 20^th percentile of households in a service area based on income. These measures help determine the prevalence of poverty in a service area, which impacts the ability of the community to afford water and sewer service. 

Other industry professionals have developed additional measures to EPA’s guidance. Hours at minimum wage is one alternative. The total water and sewer bill for an efficient amount of water use is divided by the minimum wage for a month. This determines how many hours a household would have to work to pay the water/sewer bill each month. As minimum wage varies between states, you could be in a different state and have more low-income customers struggling with affordability issues, depending on the monthly bill.

Stantec has developed a model called WARi^TM, or Weighted Average Residential Index, which looks at customers by census tracts in a service area. We evaluate the distribution of incomes, then estimate the financial impact of bill changes over time for those households. We can also characterize other metrics describing the service area customers. These include poverty levels and percent of households paying more than 30 percent of income on housing.

Bill changes over time are determined through long-term financial planning using our Financial Analysis and Management System. We determine how rates change over time to satisfy the regulatory needs of a utility’s system; annual repairs and replacement; and other capital investments, operating costs, and financial goals.

Helping those struggling with water affordability

Once we identify those customers that need assistance, we can work with utilities to develop changes to their water rate structure or look at assistance programs that a utility could implement. There are different programs to enhance affordability of service. Our goal is to help as many of these customers as we can and reduce barriers, then reassess each program down the road.

For the Toho Water Authority in Central Florida, we helped the utility review several types of assistance programs. Historically, it provided one-time assistance to certain customers through the Toho Assistance Program (TAP). The program helps if a customer has a line break or a leak and they needed assistance paying for repairs. Toho did not have an affordability program where qualifying customers would get a regular discount on their bills. We looked at a series of alternative types of customer-assistance programs for the utility and estimated how much it would cost Toho to employ under varying participation assumptions.

As a result, we discovered that Toho’s water and sewer rates were already at a level that a bill discount likely would not meaningfully help these customers. There were other challenges to a customer’s ability to pay their bills or being able to stay in their homes, such as paying a deposit or late fees for water service. These challenges led Toho to work with community social services partners and develop a more robust assistance program to help customers in more aspects than water and sewer bills alone. 

In our research, we found that are multiple factors that could improve the affordability of water service. Here are some of the programs and ways in which we can help:

Rate structure adjustments, such as a lifeline rate. Establish a minimum amount of water usage every month that is priced at a certain level that would be more affordable to a larger group of challenged households. Usage greater than that minimum is priced at a higher rate and tied to the utility’s costs of providing water service.

Bill discounts. Offer discounts on a customer’s bill for qualifying customers based on a specified percentage of the federal poverty level for income. Discounts can be a fixed amount or a percentage of the total bill.

Conservation programs allocating funds to fix leaky water pipes. Some customers cannot afford to repair faulty pipes, which leads to excess water usage. A program to fix these issues helps lower customers’ water bills.

Business Case Evaluation (BCE) framework. We have developed a tool, the BCE, to evaluate the costs and benefits of different customer-assistance programs. This tool helps determine if one customer-assistance program is better than another. It also helps verify if an existing program is working or not working. We do this by gathering and estimating cost data for some programs and benefits data from two perspectives—the customer and the utility.

• For customers, the benefits are a lower water bill or some sort of assistance for fixing leaks. The cost of the program for customers is low.
• From the utility’s perspective, we want to make sure that these programs enhance the ability of the utility to recover costs and lower some of its expenses. We quantify this in our tool and the results inform the utility if the program is effective.

How do customers enroll in these programs?

Historically, enrollment in customer-assistance programs is low. Some customers cannot afford their bills, yet people are not signing up and getting assistance. It seems odd. There are many reasons we believe customers are not signing up for these programs. Access and knowledge of where to go to sign up or other factors, such as internet access or inability to produce income-qualification verifications, may contribute.

One way utilities are addressing that challenge is by increasing customer communications and partnering with local social service agencies.

In the Cleveland area, our team worked with the Northeast Ohio Regional Sewer District (NEORSD) to expand its affordability program to renters. Previously, its affordability program was only offered to homeowners; however, we know that a large proportion of customers needing bill assistance are renters. Renters do not always receive the water and sewer bill. And they do not always pay directly for or know how much they are paying for water, as it is often part of their rent.

NEORSD focused on increased communications and customer outreach. Enrollment in the affordability program has increased by offering the program to renters who have a water and sewer bill in their name.

Helping utilities help their customers

Our job is to help clients understand how their decisions affect the affordability of services and impact the most vulnerable. We can help them evaluate creating a customer-assistance program or revising their rate structures to reduce the financial impact on these customers.

When we are combining financial planning with affordability analysis, we can identify the areas of concern where customers have struggles. These may even be based on a lack of understanding of water conservation and what the customer can do to reduce their usage, thereby reducing their bills.

We know that the desire for these programs is out there. The challenges are to enroll customers in need and disburse program funding to serve the maximum number of customers.

Something for utilities and the federal government to consider is working to make the current federal low-income household water-assistance program permanent. If utilities can enroll more customers in these programs to demonstrate that there is a need and show that their customers will apply and be able to use the funds, a permanent program makes sense. Our goal is that through these programs we can help serve more customers that need assistance and lighten the financial impact for these necessary life services.