Water utility managers are faced with a dilemma. They have a well-documented need to raise rates in order to help fund urgent capital improvements for plant and equipment. At the same time, they need to be mindful about the portion of their customers who are having difficulty paying their bills. How can these two conflicting positions be reconciled?
“The answer begins by first addressing each issue separately – not together,” said Ann Tu-Anh Bui, Director, Black & Veatch’s management consulting business. “Rate structures are typically designed to recover the cost of running the utility completely and fairly. They are not intended to be the place where the utility also deals with affordability concerns.”
She said this does not mean that the affordability issue should be ignored. Rather, a concentrated effort needs to be put forth on the part of the customer base that is truly in need.
Once the utilities address those who need utility assistance, then it can separately focus on getting rate approvals that include much-needed capital improvements and builds a solid foundation. If a utility no longer has to offer discounts to its entire customer base – once those in need are accounted for – then it can focus on the customer base that can provide for a strong future.
“Water utilities could take a tip from their gas and electric brethren and implement strategies that reach out to community organizations that provide social support. These might include charitable aggregators such as the United Way, or even the county social services agencies.”
Ann Tu-Anh Bui, Director, Black & Veatch’s management consulting business
Implementing Level Payment Plans
Bui said the entire customer base could potentially benefit from the introduction of a budget billing program, also known as level payment plans. This is a rate strategy where the utility bills the same amount each month, which makes it easier for households to plan for the expense. The bills are adjusted just once a year, either up or down.
Gas and electric utilities have used this for decades, but it never really attracted attention on the water side, probably because for so long, the household water bills were so low, she said.
“Most utilities today are faced with considerable revenue needs, but customers have financial limitations, too. It’s time to get creative. Both issues can be resolved. Water utilities also suffer from a public mentality that says water service is a ‘right.’ This has historically minimized the fact that a water utility is a business that regularly incurs large maintenance and capital improvement costs.”
Ann Tu-Anh Bui, Director, Black & Veatch’s management consulting business
What One Alabama Water Utility Did
Set up a charitable organization to handle the funds and to make independent decisions;
Funds were initially raised from events such as golf tournaments;
Customers were asked to donate $1, $5 or $10 on their monthly utility payment;
The Salvation Army volunteered to accept the funds and make the tough decisions for assistance;
And now thousands of customers contribute monthly.
Subject Matter Expert
Ann Tu-Anh Bui: BuiA@bv.com
