Ensuring Drinking Water Affordability: Challenges and Opportunities in Local and

State Policy Making

October 19, 2017

Luskin Center for Innovation

Dedicated to enhancing the ability of governments and other organizations to provide environmental programs and services in fair, effective, and financially sustainable ways through:• Applied Research • Teaching and Outreach• Program Design and

Evaluation

Paying for water and wastewater services in the United States• Highly fragmented and decentralized with local

government, non-profit, and for-profit service providers

• Federal legislation drives most environmental regulations/costs

• Federal government incentivizes private lending through interest tax exemptions and provides project level funding assistance to utilities through variety of federal programs

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Paying for water and wastewater services in the United States (Continued)• State governments establishes economic

regulatory framework– In most states, government/non-profit rate authority at

local level and for-profit rate authority under state regulatory commissions

• Variation in state government involvement in project level funding

• Customer assistance programs primarily implemented at utility level with very limited federal or state involvement

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Outline of Session

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• Background and Motivation: Why are we talking about drinking water affordability?

• Existing limitations and best practices by utilities to addressing affordability

• The state affordability experiment in California• Question and Answer

Focus on customer-level affordability

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• Financial capability: the ability of the utility to pay for the capital and operations costs associated with providing safe and reliable service

• Affordability: the ability of individual customers to pay for services that are adequate to meet their basic needs

• These two abilities are related but we focus on the latter

Credit: (Davis and Teodoro, 2017)

Debate about affordability metrics

Why help households pay for water service?

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• #1- Health and livelihood impacts

• #2- Rapidly-rising retail cost of drinking water

• #3- Real stagnating incomes

• #4- Comparable programs exist in other sectors

#1- Health and livelihood impacts

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• Affordable water consumption is a public health priority

• The retail cost of water has and will continue to rise

• If water is unaffordable, low-income households either: Consume less water than is healthy and/or Consume less of other vital services to pay for waterExperience adverse budgeting impacts

#2- Rising retail costs

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#2- Highly unequal retail costs

#2- Federal subsidies are falling

# 3- Real incomes are stagnating

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• 200% of the Federal Poverty Line for a 4-person household is currently $48,600

Designation % of State Households

Below Federal Poverty Line14%

Below 150% Federal Poverty Line24%

Below 200% Federal Poverty Line34%

#4- Affordability programs for other utilities

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Programs Expenditures

California Alternate Rates for Energy

$1,300 Million

Energy Savings Assistance Program $400 Million

Low-Income Home Energy Assistance Program

$173 Million

Universal Service Program (Telecommunications)

$723 Million

#4- Affordability assistance for water

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Water Systems Percent of State's Population Served

Amount spent on LIRA in 2015

LADWP 10% $26 million CPUC Private Water Systems 14% $27 million

24 Other Large Urban Water Suppliers

7% $4.2 million

TOTAL 31% $57.2 million

Assessment and Implementation Challenges

Hot Customer Assistance Debates

• What metrics should be used:– To convey general concern– For regulatory relief– To qualify for funding assistance– For assisting individual customers

• How should customer level assistance be funded and administered?– What legal framework changes are needed– How do you reach “hard to reach”

Moving beyond “percent MHI”…• Most used and most

critiqued metric• Historic focus on

what the “median” person pays for water as a percent of income

• Metric has been used beyond what it was meant to be used for….

Household Level MetricExample DC Water Customer Assistance Eligibility

Water and Wastewater Residential Rates Affordability Assessment Tool

On the EFC WebsiteGo to http://efc.sog.unc.eduand search for “Affordability Assessment Tool”

Free, simplified Excel tool allowing you to examine several metrics to assess how affordable your rates

are in your community

Navigating Legal Pathways to Rate-Funded Customer Assistance Programs

https://efc.sog.unc.edu/pathways-to-rate-funded-customer-assistance

Can a Utility Use its Primary Revenue Source (Rate Revenue) to Fund a

Customer Assistance Program• 52 state/territory legal snapshots• Nine case studies of well funded customer

assistance programs• Analysis of other sector approaches• Analysis of international approaches

Non Commission Regulated Utilities: Ability to Implement CAPS Funded by

Ratepayer Revenues by State

Podcast: http://thewatervalues.com/2017/10/17/customer-assistance-programs-expanding-importance-stacey-isaac-berahzer/

North Carolina Example• State rate setting statutes do not envision a

customer assistance program• Language suggests that income can not be

used to influence what a customer is “charged”

• Work Arounds– Use voluntary funding mechanisms and have

program implemented by charity (OWASA)– Use general tax dollars and have program

implemented by social service department (Raleigh)

The Final Hurdle: Hard to Reach (H2R)!!

• Many households do not have relationship with their service provider

• Multi-family tenants• Providing them direct

assistance requires different strategies

What are the Available Options for H2R Customers?

• Work DIRECTLY with the H2R and their landlords– Discounts to landlords– Vouchers– Discounts through energy utility– Discounts for affordable housing– Conservation– Target housing units rather than households

Shrink the H2R population– Sub-metering– Make single-family renters establish an account

• Provide INDIRECT assistance– Raise awareness/support existing assistance programs – Partner with community organizations to support

low-income households

California’s prospective statewide program

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September 2012: Human Right to Water (HRW) bill passesCA Assembly Bill 685Water must be “safe, clean, affordable and accessible”Requires state agencies to consider the right when adopting new policies or giving grants to water systems

October 2015: Low-income Water Rate Assistance (LIRA) program study passes CA Assembly Bill 401 Report to the legislature on feasible plan designs due by

February 2018

Open Affordability Questions

• How much consumption should be affordable?

• Should households paying less to live in hard to reach areas pay more for water service?

• Should water cost be included in housing affordability measures or vice versa?

• How should affordability assistance be financed?

Individual water systems are diverse in capacity

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Wat

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Very Small (0-500) Small (501-3,330) Medium (3,301-10,000) Large (10,001-100,000) Very Large (>100,000)

y y y y

County Water District Municipal Water District

Mutual Water Company Private Water Company

Irrigation District Unknown System Type

Community Water Systems in Los Angeles County by Size and Type (n=218)

Many systems have high eligibility and can’t implement a CAP

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• In 22% of systems, which represents 10% of state’s population, more than half of households would be eligible

TULARE CUTLER PUD 87%FRESNO MENDOTA, CITY OF 83%TULARE EARLIMART PUD 81%SUTTER CITY OF YUBA CITY 81%FRESNO SAN JOAQUIN, CITY OF 81%TULARE PIXLEY PUBLIC UTIL DIST 81%SAN BERNARDINO CITY OF ADELANTO 80%KERN CITY OF MCFARLAND 77%KERN ARVIN COMMUNITY SERVICES DIST 76%TULARE TERRA BELLA IRRIGATION DISTRICT 76%SANTA BARBARA GUADALUPE WATER DEPARTMENT 75%

% of Households Below 200% Federal Poverty Line

County Water System Name

Three Key CAP Scenario Features

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• Eligibility: the number of households qualified based on socioeconomic criteria

• Household Benefit: the type and level of annual financial assistance

• Potential annual program cost: 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁 𝑜𝑜𝑜𝑜 𝑁𝑁𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑁𝑁𝑒𝑒𝑁𝑁 ℎ𝑜𝑜𝑁𝑁𝑜𝑜𝑁𝑁ℎ𝑜𝑜𝑒𝑒𝑜𝑜𝑜𝑜 × 𝐻𝐻𝑜𝑜𝑁𝑁𝑜𝑜𝑁𝑁ℎ𝑜𝑜𝑒𝑒𝑜𝑜 𝑁𝑁𝑁𝑁𝑏𝑏𝑁𝑁𝑜𝑜𝑒𝑒𝑏𝑏

Four Program Scenario Alternatives

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• Scenario #1: All state households below 200% of the FPL are enrolled in a statewide program offering 20% discount on 12 CCF

• Scenario #2: All state households below 200% of FPL and paying less than $100 on their monthly water bill receive a 20% discount; households below 200% of FPL paying $100 or more on their monthly water bill receive a 35% discount

• Scenario # 3: All state households below 200% of FPL who are not served by a CPUC-regulated water system with an existing LIRA are enrolled in a separate, unified program offering 20% discount

• Scenario # 4: All state households below 200% of FPL who are served by a water system not currently offering a compliant LIRA are enrolled in separate, unified program offering 20% discount

Scenario Options Considered• Eligibility definitions considered and empirically modeled include households:• 100%/150%/200% of FPL• Paying more than 150%, 200%, 300% of average state water bill – Provides benefits

to households below 200% FPL in a system with exceptional costs relative to the state average

• Spending 1,2,3,4,5% of income on drinking water bill- Provides benefits to individual households spending more than a certain percent of their income on water

• Below DAC, SDAC income lines used by other state programs - All state households with incomes below level used for Disadvantaged Community designation (80% of state median household income) or Severely Disadvantaged Community designation (60% of state median household income)

• Small Systems- Provides benefit to those households below 200%FPL that exist in small systems, serving less than 200 people

• Other benefit level definitions considered and empirically modeled:• 20% discount on monthly 10 or 14 CCF expenditure• 35%/50% discount on monthly 12 CCF expenditure• 25%/50%/75% discount on monthly 6 CCF expenditure

Estimated Cost of these designs

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Program Scenario % of state’s households

covered

% of households eligible within

coverage definition

Estimated Annual New Program Cost

#1: Entire state program providing 20% discount

100% 34% $580 million

#2: Entire state program providing tiered (20-35%) discount

100% 34% $619 million

#3: Program excluding CPUC-regulated systems and providing 20% discount

86% 34% $488 million

#4: Program excluding all CWS with existing, compliant LIRAs and providing 20% discount

54% 33% $277 million

Program Financing Options and Challenges

Precedent:• Unit-based consumption surcharge on customers

drinking water bills (Prop 218)

Potential:• Passage of a state-wide tax or fee (Prop 26)• Per account charges to both residential and non-

residential customers• Annual state income tax rebate to eligible

households financed by dedicated state fund

Additional Administrative Considerations

• Drawing on existing statewide benefit programs: CARE, CalFresh, LIHEAP

Ongoing management considerations include:• yearly program management costs, • household enrollment verification, • future adjustments to program features, and• transparent monitoring of program performance

Open Affordability Questions

• How much consumption should be affordable?

• Should households paying less to live in hard to reach areas pay more for water service?

• Should water cost be included in housing affordability measures or vice versa?

• How should affordability assistance be financed?

Questions?Contact:

Greg Pierce: gspierce@ucla.edu

Stacey Isaac Berahzer: berahzer@unc.edu@StaceyIB_enviro ; #wateraffordability

Jeff Hughes: jhughes@unc.edu

Affordability: Out of Pocket Costs

• Forced cost: poor quality leads to purchase

• Self-induced cost: bottled water, water stores

=> $3.79 for gallon of bottled water while typical cost of tap water is$0.002/gallon

• Difficulty with calculating given that it is not reported in any data source