Full Cost Pricing Key to Sustainability

Full cost pricing is considered to be one of the four pillars of sustainable infrastructure, along with utility management, water conservation and managing water on a watershed basis. And to remain sustainable, many water utilities must bite the bullet and increase their rates.

James Laughlin

One of the first things I do every morning is open Google News on my computer to get a quick glimpse of happenings from around the world. A nice feature of Google News is the ability to compile custom searches, and one of mine is simply any news article that includes the word “water.” Lately I’ve seen a fair number of stories about water rate hikes. While most are small – under 5 percent – others have been much larger.

Some recent examples: New Orleans water and sewer rates will more than double by 2020, going up 10 percent a year for the next eight years to fix ailing infrastructure; Downers Grove, IL, water rates will jump 18% to keep up with the increasing cost of purchasing water and to maintain its infrastructure; and in Toledo, OH, city water rates increased 9 percent each in 2010, 2011, and 2012, and are already scheduled to go up 9 percent again next year as the city struggles to meet a $257 million price tag to fix various parts of its aging drinking water treatment plant.

A common theme in these news articles is the anger of customers over even the smallest rate increase, and the water district's desperate need to raise money for infrastructure repairs.

At a recent meeting in Milford, MA, 300 people turned out to protest a proposed water rate increase of 83 percent, terming the increase both "outrageous" and "inconceivable." The local water company has been ordered to build a new $25 million water treatment plant and requested the rate increase to pay for the project.

While Milford is an extreme case, cities and towns across the country are faced with the prospect of raising rates to pay for failing infrastructure. Given the soaring federal deficit, our dysfunctional leadership, and the sad state of our water infrastructure, water rates will be going up for the foreseeable future. Ultimately, for drinking water and wastewater utilities to remain sustainable, rates should cover the full cost of service, including maintaining infrastructure.

According to a survey conducted by the Organization for Economic Cooperation and Development, the United States has the lowest burden among developed nations for water/wastewater bills when measured as a percentage of household income.

To help utilities with rate setting – and the struggle to balance affordability with full cost pricing – the Environmental Protection Agency maintains a website devoted to pricing strategies. The site includes pricing guides and manuals, articles, case studies and reports on pricing, plus information on the concept of pricing and its relationship to water conservation.

As an example of affordability concerns, low-income households are hardest hit by price increases. One option is for communities to offer lower rates on the portion of water consumption considered non-discretionary (the minimum sanitary requirement, for example, is 6,000 gallons a month), but higher rates for water consumption beyond that amount.

Ultimately, full cost pricing is considered to be one of the four pillars of sustainable infrastructure, along with utility management, water conservation and managing water on a watershed basis. And to remain sustainable, many water utilities must bite the bullet and increase their rates.

To learn more about full cost pricing and rate setting, visit http://water.epa.gov/infrastructure/sustain/Water-and-Wastewater-Pricing-Introduction.cfm.

James LaughlinJames Laughlin, Managing Editor
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