AFFORDABILITY OF WATER SERVICE--PART 1

From time to time, some commentators have sought to address "affordability" of rates for public utility water service. More recently, such discussions may be accelerating as utilities seek to cope with rising costs of service resulting from more stringent regulations, infrastructure replacements and increased operating expenses.

Some times, affordability is viewed as an issue only for low income water users. Other times, the concept is seen as a matter of willingness to pay, particularly if based upon perceived value of water or perceived poor quality of service, regardless of income level.

Indeed, some authors have asserted that utilities should educate customers as to the "value" of water and water service. Frankly, such "value" has no rational relationship to rates based on cost of service recovery. In the case of unwillingness to pay due to perceived service issues, utilities can and should respond with corrective measures on a timely basis--which sometimes by themselves can result in rate increases to fund infrastructure upgrades.

Generally, it has been suggested that "low income" water customer affordability can be measured as a percentage of total income--for example, 1 to 2.5 % of median household income, as computed by one or more federal or state agencies that compute that sort of thing.

Assuming "low income" can be defined, the issue becomes how rates for water service can respond. Generally, two alternative rate scenarios have been proposed by some commentators: (1) a discounted base rate specifically only for low income customers; or (2) an entire discounted rate structure solely for low income users.

Under a discounted base rate, low income customers would be entitled to an initial rate block of say 5,000 gallons per month, at a charge below cost of service. Some have asserted that this would be akin to a "lifeline" rate. A discounted rate structure would have all rate blocks below cost of service, but perhaps would recover more of cost as the blocks increase.

In my next post, Part 2 of this series will discuss issues arising from "affordability" rate proposals.