Download Traditional and New Sources of Water Revenue

Fact Sheet
UTILITY FINANCE
Revenue
Traditional and New Sources of Water Revenue
Quick Facts
• Water utilities need adequate revenue to achieve their missions
• New revenue sources can also improve customer satisfaction
• Conservation can be an effective method for increasing water supply
• Water affordability programs help ensure water services are available to low-income customers
Overview
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used to promote water conservation.
resent the majority of a utility’s revenue. Water utilities
need revenues to meet their mission of providing safe,
Increasing block rate. The price of water goes up
as the amount used increases. This rate is often
Rates and fees associated with water sales typically rep•
Uniform rate. Customers are charged a constant
reliable, and high-quality water. Revenues also ensure that
price per gallon, regardless of the amount of water
a water utility can cover its expenses, which can include
used.
debt service, capital improvements, personnel costs,
energy, chemicals, and operations and maintenance.
Rate Structures and Water Bills
The four most common types of utility rate structures are:
•
Decreasing block rate. The price of water declines
as the amount used increases (AWWA 2000).
Water charges are specific to each utility and can differ
by region. In a 2014 American Water Works Association
(AWWA) rate survey, the median water bill was $34.72 in
the Northeast, $30.35 in the Midwest, $44.76 in the South,
•
Flat rate. Customers pay the same total amount
and $31.64 in the West (AWWA 2015).
each billing period, regardless of the quantity of
water used.
Water bills have increased in recent years because of
increasing costs associated with providing water service
and the need to fully recover those costs. Between 2012
waterrf.org
and 2014, the average consumer’s
$50.00
Drinking Water
monthly bill increased 9.5% and 9.7%
for water and wastewater, respectively
(AWWA 2015).
Wastewater
$45.00
$40.32
$40.00
Water Affordability
Programs
As water rates continue to rise, lower-income customers may have
difficulty paying their water bills.
In fact, affordability is typically an
issue for water bills that approach or
exceed 4.5% (2.5% for water, plus 2%
for wastewater services and combined sewer overflow controls) of
median household income (Stratus
Consulting 2013).
$35.00
$44.76
$36.23
$34.72
$30.35
$30.00
$31.88
$32.81
$31.64
$25.00
$20.00
$15.00
$10.00
$5.00
To address these affordability issues,
water utilities have developed customer assistance programs to ensure
that necessary water services remain
available to those who cannot afford
them. Affordability programs can
$0.00
Northeast
Midwest
South
West
Reprinted from 2014 Water and Wastewater Rate Survey by permission.
Copyright © 2015 the American Water Works Association
Figure 1. Median monthly charges for 7,480 gallons by geographic group
include a variety of fixed or variable
discounts and credits, as well as spe-
Water utility expenses can include:
cifically tailored (or “lifeline”) rates
(Cromwell et al. 2010).
Revenues and Expenses
•
Debt service
•
Infrastructure renewal programs
•
Capital improvements
•
Operations and maintenance
There are two categories of water utility revenues
•
Power and chemicals
and expenses, fixed and variable. Fixed revenues and
•
Purchased water
expenses do not change with the volume of water pro-
•
Regulatory compliance
duced, while variable revenues and expenses change in
•
Personnel costs
direct relationship to the volume of water produced.
•
Other miscellaneous fees or programs
Revenue sources for a water utility often include:
•
Water supply fees
• Volumetric water rate charges
•
Interest income
•
Non-operating income (e.g., property leases or contracting services)
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Other miscellaneous fees and charges
Utility Finance
•
Revenue
Revenue and Customer Service
A number of utilities are exploring additional business
lines that are beyond the core mission of reliable drinking
water delivery. New services can generate additional revenue and can also improve customer satisfaction. These
opportunities leverage assets already owned by the water
utility and develop other assets to take advantage of the
utility’s core functions (Raucher et al. 2011).
Revenue ideas
•
•
•
•
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Real estate sales/leasing
Plumbing-related services
Contracted lab services
Advertising on water towers
Service line insurance policies
Utilities must remain flexible and
innovative to ensure financial stability
and to continue to provide safe, reliable,
and high-quality water to customers at
an affordable price.
Conservation
References
Many water utilities struggle with revenue decreases
brought about by water conservation due to increasing
AWWA (American Water Works Association). 2000. M1
use of water-efficient appliances and fixtures, as well as
Principles of Water Rates, Fees, and Charges. 5th ed.
through water utilities’ own conservation programs. Cost
Denver, Colo.: AWWA.
savings can be achieved through forestalling capacity
expansion and reducing energy and chemical costs. While
AWWA (American Water Works Association) and Raftelis
(Raftelis Financial Consultants, Inc.). 2015. 2014 Water
conservation tends to reduce water sales and revenue in
and Wastewater Rate Survey. Denver, Colo.: AWWA
the short term, overall it can be an effective method for
and Charlotte, NC: Raftelis Financial Consultants, Inc.
increasing water supply.
http://www.awwa.org/portals/0/files/publications/
documents/2014waterandwastewaterratesurveyre-
Common conservation-based strategies include:
visedmarch.pdf.
Cromwell III, J. E., R. D. Colton, S. J. Rubin, J. Mobley, K.
•
•
Increasing block rates. This is a commonly
Reinhardt, R. Wilson, and C. N. Herrick. 2010. Best
employed rate structure that sends a conserva-
Practices in Customer Payment Assistance Programs.
tion-oriented price signal.
Project #4004. Denver, Colo.: Water Research
Water budgets. Each customer will have a different
Foundation.
budget based on their specific water use character•
and B. McLoughlin. 2011. Expanding Water Utility
Drought pricing. This strategy can include various
Services Beyond Water Supply to Improve Customer
surcharges or rate increases that are only instituted
Satisfaction and Utility Effectiveness. Project #4171.
during droughts.
•
Raucher, R., J. Clements, J. Oxenford, K. Raucher,
istics (landscape, household size, etc.).
Seasonal rates. Such rates establish a higher
Denver, Colo.: Water Research Foundation.
Stratus Consulting. 2013. Affordability Assessment Tool
price for water consumed during a utility’s peak
for Federal Water Mandates. Washington, D.C.: U.S.
demand, as a means to curtail consumption during
Conference of Mayors; Denver, Colo.: American Water
that period.
Works Association; Alexandria, Va.: Water Environment
Federation. https://usmayors.org/urbanwater/
Rate Regulation and Legal
Considerations
media/2013/0529-report-WaterAffordability.pdf.
Water utilities’ rates and fees are regulated by a governing
body. Although private utility rates are regulated by a utility commission, public entities are regulated by a board
or council. Regardless of how a utility is regulated, it must
develop a rate-setting strategy that is lawful, just, and
reasonable in order to stand up to legal challenges.
Last updated June 2017
Utility Finance
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Revenue
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