The 2013 AE2S Nexus North Central Region Utility Rate Survey for systems serving less than 5,000 people included information related to rural/regional water systems in Minnesota, Montana, North Dakota, and South Dakota. In 2013, 37 rural/regional systems responded to the survey, with 46 percent of respondents from North Dakota, 35 percent from South Dakota, 11 percent from Minnesota, and eight percent from Montana.
Although not all regional water systems are located in rural areas, in our region that is generally the case. For many systems, that translates to a low population density and a resulting high cost per user in terms of system investment. Data from the 2000 Census shows that the difference in population density between metropolitan and non-metropolitan areas for South Dakota, for instance, is seven people per square mile in non-metropolitan areas versus 63 people per square mile in metropolitan areas. This presents a unique challenge when it comes to setting both equitable and affordable rates for rural water system users. Even with the grant funding sometimes available to build rural systems, the capital costs associated with start-up and replacement of the systems are very large on a per user basis as compared to most municipal systems. As a result, out of necessity, regional water rates are most often comprised of a fixed charge associated with capital investment/debt repayment and a volumetric charge associated with operations.
Figure 1 presents the monthly bill data from the rate survey in a little more detail. The fixed portion of a monthly bill for 6,000 gallons is shown in blue, and contains a blue data label. The red bar represents the volumetric portion of the 6,000 gallon bill, and the data label to the right of the red portion of the bar indicates the total reported charge for 6,000 gallons of water per month. For comparison, we calculated the percent fixed charge of each reported bill and found that for the 2013 survey respondents, the average is 56 percent.
Figure 1: Reported Monthly Water Charge for 6,000 Gallon Bill for Regional Survey Respondents – 2013 AE2S Nexus North Central Region Utility Rate Survey
Systems are often curious as to volumetric water rates charged by other regional systems. Of the 37 regional rate survey respondents, four systems noted that some amount of water was included with the monthly fixed charge. Excluding those four systems from the comparison, it was found that the highest reported volumetric rate was $9.00 per thousand gallons, the lowest was $1.50 per thousand gallons, and the average and median charges were $4.50 and $4.25 per thousand gallons, respectively. It is important to note that rate-setting practices can vary widely between regional systems. As a result, when making rate setting decisions based in part upon comparison with similar systems, it is important to choose systems with similar rate-setting goals and strategies.
Scott J. Rubin, National Rural Water Association. “Economic Characteristics of Small Systems”, 2001.