Water Affordability Resources for Utilities
Water utilities across the U.S. face significant water affordability challenges. These costs are driven in part by rising operational costs, the need for substantial investments in maintenance, and infrastructure upgrades.
Utilities face the balancing act of funding routine operation and maintenance costs and longer-term capital expenditures to replace or upgrade infrastructure. O&M cost increases are often driven by labor and supply costs and the increased maintenance needs of aging plant and pipeline infrastructure. Capital expenditures are often driven by the need to replace or upgrade infrastructure due to age, increased demand from population or industrial growth, and the need for resiliency to climate change.
- Pricing Structures
- Utility Customer Assistance Programs
- Clean Water Act Financial Capability Assessment Guidance
- Additional Resources
Pricing Structures
User fees typically generate funds for daily operations and maintenance and long-term capital investments for drinking water and wastewater systems. There is a perception that water is readily available and water services are generally inexpensive; however, that is not always the case. Public education on water sector system operations and water conservation can help utilities meet essential infrastructure needs.
Pricing of water services should accurately reflect the true costs of providing high-quality water and wastewater services to consumers to maintain infrastructure and plan for upcoming repairs, rehabilitation, and replacement of that infrastructure. Prices signal value to consumers and help determine whether consumers use water efficiently. If prices are too low, consumers may use too much water. It is also essential that the pricing of water services covers the costs of providing service, for both operations and maintenance and capital expenses.
Low-income households, especially those served by high-cost systems, may face affordability problems if prices are raised. To alleviate these hardships, communities can offer pricing structures that mitigate impacts on low-income households. The most common example is "lifeline rates," where low-income households are charged lower rates on non-discretionary water consumption and higher rates on water consumed beyond that amount. The American Water Works Association has comprehensive information on water affordability programs.
Full cost pricing factors all costs into prices, including past and future operations, maintenance, and capital costs. Full cost pricing can take the form of any of the rate structures shown below, as long as all costs are recovered. Pricing decisions involve considerations of equity as well as efficiency. Learn about Understanding Your Water Bill.
Price Structures that Encourage Conservation:
- Increasing block rates - Using block rates or tiered pricing that increase with water usage. The per-unit charges for water increases as the amount of water used increases. The first block is charged at one rate, the next block is charged at a higher rate, and so on.
- Time of day pricing - Charging higher prices for water used during a utility's peak demand periods.
- Water surcharges - Charging a higher rate for "excessive" water use (i.e., water consumption that exceeds the local or regional average).
- Seasonal rates - Water prices rise or fall according to weather conditions and the corresponding demand for water.
Price Structures that are Less Effective in Encouraging Conservation:
- Uniform rate structures - A uniform rate charges the same price-per-unit for water usage beyond the fixed customer charge, which covers some fixed costs. The rate sends a price signal to the customer because the water bill will vary by usage. Uniform rates by class charge the same price-per-unit for all customers within a customer class (e.g., residential or non-residential).
- Decreasing block rates - Using block rates or tiered pricing that decrease with water usage. The per-unit charges for water decreases as the amount of water used increases.
- Flat fee rates - Flat fee rates do not vary by customer characteristics or water usage.
Utility Customer Assistance Programs (CAPs)
Households on fixed or lower incomes, as well as households that face a temporary crisis such as a job loss or illness, may have difficulty paying water and sewer bills. Many drinking water and wastewater utilities have seen an opportunity to meet specific customer needs, along with the needs of meeting their own operational and capital costs to provide drinking water delivery and/or wastewater management services, through developing customer assistance programs (CAPs). Learn more about CAPs.
Clean Water Act Financial Capability Assessment Guidance
Communities, in consultation with regulators and the public, are responsible for evaluating and selecting pollution controls that will meet Clean Water Act (CWA) requirements. EPA encourages communities to use integrated planning and innovative technologies, such as green infrastructure, to achieve CWA compliance in a timely, flexible, and cost-effective manner. After controls have been selected, a financial capability assessment (FCA) is used to assess a community’s financial capability as part of negotiating implementation schedules under both permits and enforcement agreements.
The Financial Capability Assessment Guidance (FCA Guidance) is used by municipalities when devising plans to come into compliance with the CWA. During that process, municipalities and EPA negotiate schedules with specific timeframes for implementation. The FCA Guidance describes the financial information and formulas the agency uses to assess a community's financial resources to implement control measures and timeframes.
Additional Resources
The following resources assist water and wastewater systems design rate structures and understand the relationship between pricing and conservation.
Funding and Financing Resources
Guidance, Guides, and Manuals
Small Systems
- Setting Small Drinking Water Systems Rates for a Sustainable Future (pdf) (344.88 KB)
- Midwest Assistance Program: North Dakota Small Community Water System's Handbook on Developing and Setting Water Rates (pdf) (242.62 KB)
Wastewater Systems
- Evaluating Municipal Wastewater User Charge Systems: What You Need to Know (pdf) (12.53 MB)
- A Water and Wastewater Manager's Guide for Staying Financially Healthy (pdf) (1.12 MB)
- Building Support for Increasing User Fees (pdf) (1.90 MB)
Tools and Training
- National Association of Regulatory Utility Commissioners (NARUC): Utility Rate School
- Webinars on Customer Assistance Programs at Drinking Water and Wastewater Utilities
EPA Reports and Resources
- A Compendium of Drinking Water and Wastewater Customer Assistance Programs
- Assistance that Saves: How WaterSense Partners Incorporate Water Efficiency into Affordability Programs (pdf) (3.85 MB)
- Case Studies of Sustainable Water and Wastewater Pricing (pdf) (1.08 MB)
- Pricing of Water and Wastewater: An Informational Overview (pdf) (305.63 KB)
- Consolidated Water Rates: Issues and Practices in Single Tariff Pricing (pdf) (341.76 KB)
- Expert Workshop on Full Cost Pricing of Water and Wastewater Service (pdf) (557.61 KB)