News Feature | January 18, 2023

With Environmental Equity In Question, Should Utilities Change Their Rate Models?

Peter Chawaga - editor

By Peter Chawaga


As the Biden administration continues to invest in environmental equity around the country, significant funding is being allocated for the water and wastewater treatment industries.

“The EPA said about $100 million would be available for projects around the country that are aimed at advancing equitable environmental outcomes for communities that are underserved or face disproportionate amounts of pollution,” The Hill reported. “EPA Administrator Michael Regan told reporters … that the grants it will dole out can address a range of issues including those related to drinking water, climate change impacts and pollution discharges from nearby facilities.”

But large government grants might not be the only way to address the fundamental disparities in drinking water and wastewater services around the country. In a recent report, the US Water Alliance, a national nonprofit comprised of water utilities, public officials, and other members, argued that the prevailing drinking water and wastewater utility funding models should be updated.

“While other common goods like roads and libraries are funded collectively through fees, tax revenue, and combination of the two, water services are funded by individual customer payments,” according to the report. “Water and wastewater utilities rely almost exclusively on revenue from residential, commercial, and industrial customers within their service areas.”

With some $4.92 billion in annual revenue loss due to unpaid bills for the water sector, many utilities have turned to customer assistance programs like flexible payment options to avoid shutoffs for lower-income consumers, per the report. But many within the industry argue that this is not a fundamental solution to the problem.

Instead, the US Water Alliance proposes the use of “innovative pricing models” that would see water bills decrease for most low-income households and increase for higher-income households through property-based charges that account for things like parcel areas, building footprints, property values, and more.

“By developing rates that are affordable for everyone, utilities can collect more revenue from customers who can afford to pay without burdening those who cannot,” according to the report. “Changes to rate and pricing structures automatically reach everyone: there is no need to apply or enroll, or to track customer data and manage programs.”

The US Water Alliance report also outlined several areas ripe for additional research before such fundamental changes to utility funding could be implemented, but the concept of rate structures based on more equitable models seems in line with the current federal outlook on how drinking water and wastewater services should be provided.

To read more about how public utilities work with ratepayers, visit Water Online’s Funding Solutions Center.