Shifting Rate Structures Play Increasing Role in Water & Sewer Billing

Water and sewer bills have increased at a rate that far surpasses the rate of inflation since 2001; rate increases have been driven by aging infrastructure, rising operational costs and shifting regulatory requirements, according to a new report from Black & Veatch Management Consulting. Shifting rate structures will help utilities and cities plan for long-term resilience of their water supplies.

According to respondents in the 2018-2019 50 Largest Cities Water & Wastewater Rate Survey, utilities are modifying how they charge for services to address revenue stability and affordability concerns. Following extreme weather events in 2018 such as hurricanes Florence and Michael, the need is now more urgent for rate-making mechanisms that enable financial, operational and organizational resilience.

Funding infrastructure is a top priority – and a top challenge – among cities and utilities. Many utilities have developed charges specifically for capital projects or ongoing replacement and rehabilitation needs. Meanwhile, capital funding for water and sewer projects is increasingly scarce, the report states. As requirements tighten for long-term debt, many utilities have had to finance projects through cash reserves and rate increases.

Regulatory requirements are driving the need for significant capital to develop new water supply sources or to comply with clean water requirements, as well. These programs come with significant costs that have triggered rate increases.

Increasing Importance of Shifting Rate Structures

Utilities and cities surveyed for the report say they are increasingly changing their approach to rate structures, which will help them plan for the long-term sustainability and resilience of their municipal water systems. “This, in turn, will help position ur clients to deliver affordable, reliable service to their customers,” says David Mayers, water industry executive with Black & Veatch.

Use of an “inclining tier” rate structure grew from 46% in 2001 to 60% in 2018, while the use of a “declining” rate structure dropped 15%.  Survey participants with a uniform rate structure remained essentially the same, at just over one-third of participants. The trend of moving away from a declining block structure to an inclining block structure holds true for both non-residential and residential water and wastewater services.

For more on this topic, read What an Aging Infrastructure Means for Businesses in the United States.

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