The water and wastewater industry have taken encouraging steps to update the approach to affordability over this last year. What started as some recognition from those within the industry has grown to include a large affordability framework from the U.S. Water Alliance and formal update to the U.S. Environmental Protection Agency’s (USEPA) Financial Capability Assessment. This means that utilities and policy makers for these utilities have an expanded toolbox they can use to better understand how affordable rates are to users throughout their system. While many communities may have already been looking to things like lower quartile of income or minimum wage hours to evaluate what rate changes may mean, much of this new guidance will help these communities in discussions with regulators to make the smart, sustainable capital decisions needed to improve their system.
What does this specifically mean for utilities? The USEPA’s Financial Capability Assessment provides updated guidance on regulatory decisions for agencies subject to their jurisdiction. Practically speaking, it opens up the conversation about how affordable it is to meet regulatory requirements. Historically, USEPA has used the average users’ rates in relation to the median household income of a community to determine if something is unaffordable. Depending on your jurisdiction, between 1.5% and 2% percent was the generally accepted threshold for a single utility. This meant that if the annual utility bills exceeded $1,000 and your median household income was $50,000 then you would qualify for some sort of assistance, if any was available.
Moving forward, utilities will be able to look at the impact of projects as they relate to a community’s poverty rates or the income of a city’s lowest quartile residents, and fold bill impacts into the conversation and show how rate shock could hurt a utility’s user base. In short, it provides the flexibility for a community that is proactive in managing its utility finances a way to show how regulatory decisions will impact users.
These impacts can be used to help the community and regulators find a solution that is financially mutually acceptable to the community when meeting expanded regulatory requirements. If you have a long-term rate study that shows your community may be able to afford the improvements needed to meet discharge requirements in 10 years instead of five years, there may now be the flexibility to adjust compliance schedules and provide you with an additional five years to meet the revised requirements.
As you look to see how your own system’s affordability may be measured, feel free to reach out to me with any questions, at Ryan.Graf@ae2s.com.