Rate-Setting and Making Water Affordable



Affordability is a common obstacle faced by small communities running their own water systems. Although individual components may be smaller, small systems meet the same standards and undergo the same treatment processes as larger systems. The cost of running smaller systems, however, is shared by fewer customers making affordability more of an issue. Decision makers setting monthly rates face the challenge of striking a delicate balance – how do you generate enough revenue to operate and maintain your community water system while offering the service at a price community members can afford? Look through the resources below for ideas on optimizing affordability in your community.

Determining What Is Affordable In Your Community

There is no nationally accepted standard for affordability of water and wastewater service, however, the most quoted figure is that water and sewer service should not exceed 5% of median household income. In other words, if the median (middle of range) income for a household in your community is about $40,000 per year, each household should not pay more than $2000 per year, or $167 per month for water and sewer service combined.

Although this may be a good place to start, there are a number of reasons why using median household income to determine affordability may not be the best approach for your community. Glenn Barnes of the Environmental Finance Center Network has put together a presentation on the Affordability of Water Service. This presentation provides information on how to better assess what is affordable in your community and introduces the idea of customer assistance or affordability programs.

Minimizing Operation And Maintenance Costs

Lower operation and maintenance cost reduce the overall revenue needed to maintain a water system. Savings in this category can potentially be passed on to customers in the form of lower monthly bills. Long term O&M costs can be reduced by improved routine maintenance. The better equipment is cared for on a daily basis, the longer its lifespan and the less frequently it will need to be replaced.
Energy EfficiencyOne of the most significant methods to reduce both the cost and environmental impact of water and sanitation facility operation is to reduce the amount of energy being consumed. Energy efficiency measures will vary by region, heating load, system size types of fuels consumed, but some common lower cost measures include:

  • Replacing old incandescent or fluorescent lights with energy efficient LED lighting.
  • Installing occupancy sensors to ensure that lights turn off when rooms are unoccupied.
  • Weatherizing buildings, air-sealing doors, improving insulation.
  • Making changes to controls, especially boiler controls.
  • In arctic regions, using heat tape only for freeze-up recovery.

In many cases, even more costly energy efficiency retrofits (such as replacing old pumps with with new energy efficient ones or expanding heat recovery systems) turn out to be cost effective over time. In order to identify and prioritize energy efficiency measures that could make your plant more affordable and environmentally friendly, seek the assistance of an organization, such as ANTHC Rural Energy Program, that can conduct an energy audit on your facility. A good energy audit should be able to lower your energy consumption by 10-40%.

Setting Optimal Monthly Water/Sewer Bill Rates

How much do customers need to pay each month in order to generate the revenue needed to keep the water and sewer system running? Once you’ve developed the budget for your system and assessed what your community members can afford, click on the link below for more resources on setting the optimal monthly rate for water/sewer bills. 

Setting Monthly Rates

Affordability And Customer Assistance Programs

​If you find that there is a gap, that the rates needed to operate and maintain the system exceed the amount that most customers are able to pay, then you may want to consider a management model that includes partial subsidization of the water system. If you find that most customers are able to pay the required rates, but perhaps lower income customers or elders are not, you may want to consider an affordability program to assist those particular community members.

For anyon serious about gaining a deeper understanding of affordability programs, the Water Research Foundation offers a thorough resource on the topic: Best Practices in Customer Payment Assistance Programs.

Here are some examples of affordability programs you may wish to consider:

  • Allowing customers to set up payment plans to pay down debt in increments over time.
  • Connecting customers to public or private social assistance programs that help low income households pay utility bills.
  • Offering reduced rates to elders, disabled or lowest income community members. This could be financed by:
    • Slightly increasing rates for all other customers
    • Subsidization from a variety of sources such as:
      • Taxes at local store
      • Profits from local industry such as tourism or fishing
      • BINGO revenue
      • Community general fund
  • Debt forgiveness; offering a one time forgiveness of debt to customers experiencing extenuating circumstances.

Visit the Tohono O’odham Utility Authority’s website to view the outline of their Subsidy Program for assisting qualifying elders and low-income customers. Visit the Navajo Tribal Utility Authority’s website to read about their Customer Programs which include a 10% discount for senior citizens and customers with serious health conditions.

Customers Still Not Paying Bills

What about when rates are affordable, but some customers still aren’t paying their bills? Click on the link below for a list of tips for improving the proportion of customers who stay current on their bills.

Improving Payment