The purpose of this report is to help North Carolina water and sewer utilities meet their policy objectives and assure that they have the revenues they need to protect public health. The report provides up-to-date information on current rate-setting practices and trends that can inform and influence (but not dictate) local decisions. The analyses uniquely determine and compare water and sewer bills for multiple levels of consumption and relies on data from multiple sources, including 1) a rates and financial practices survey completed by 277 utilities, 2) a rates inventory and database that includes information from 333 utilities, 3) a financial information database compiled and maintained by the NC State Treasurer, and 4) data from the United States Census Bureau.
Results demonstrate that utilities’ rates and practices vary widely by community. Utility characteristics, such as size, water source and wastewater discharge, impact the prices utilities charge for service, yet other factors – such as demand conditions and the rates of nearby utilities – also affect rate-setting. Many utilities set rates to cover operating expenditures, yet most are reluctant to charge enough to adequately address their capital needs. Respondents stating that affordability concerns significantly impact their rate setting practices were more likely to have lower actual rates and lower rates as a percentage of median household income than utilities less concerned about affordability. Yet affordability appears to have a reduced role in determining other rate-setting practices, such as offering longer grace periods before penalties. With respect to conservation, utilities where managers claimed that conservation objectives significantly impacted rate-setting practices were more likely to have increasing block rate structures. However, these utilities did not send noticeably different price signals to residential customers than other utilities. Moreover, managers whose utilities were close to reaching capacity did not rate conservation as a significant factor more frequently than their counterparts
Multi-Level Financial Analysis Of Residential Water And Wastewater
North Carolina utilities use many different rate structures and practices under an economic regulatory framework that has few rate setting standards. These different structures have financial impacts on utility revenue stability, customer expenditures, and water use behavior. Different rate strategies influence resource use differently and conversely efforts to impact resource use (for example, conservation) have unique revenue impacts depending on a utility’s type of rates and customer base. For example, for some rate structures, conservation leads to a disproportionately high drop in revenues. This paper presents the results of the first of a series of research tasks that will examine North Carolina water and wastewater utilities’ rates and rate setting in the context of the impact they have on utility financial health, customer financial capacity, and resource use. Rate schedules for 344 government-owned water and wastewater utilities were collected and entered into a computer model that automates the process of calculating the water or wastewater residential customer bill for different customer classes served by utilities throughout North Carolina, based on any quantity consumed by the customer. The development of the model represents a breakthrough in the methodology for carrying out large sample size utility rate surveys. Based on a sample of 283 municipal utilities, the median monthly-equivalent customer bill charged by utilities for “inside” customers for 6,000 gallons for water was $21.08 and $25.54 for wastewater in 2004. Between 2002 and 2004, 75% and 77% of municipalities increased their water and wastewater customer bills at 3,000 gallons of consumption, respectively. In subsequent phases of the research, information from the model will be combined with information from existing financial and environmental databases maintained by other organizations to compare the modeled customer billed amount to other indicators, such as the community median household income. Utility managers can use this information to gauge the impact their rates will have on households in their community. The research will eventually be used to identify key trends and causal relationships inherent in the state’s current rate practices. The models and analyses will be used to project the financial impacts – at the state, utility and household levels – of policy options currently being considered by local governments, state regulators, and funding agencies, such as statewide conservation efforts, or changing the eligibility criteria for different sources of funding.