Part III. Survey Highlights and Observations. Survey Highlights and Observations. Other Charges Billing

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1 The data compiled in this rate survey can be used extensively for comparative analysis. Because of the site-specific nature of rate development implementation, users are cautioned not to broadly generalize the findings. However, this does not preclude the use of the survey database for gaining insights into current rates charges as well as other aspects of utility performance metrics, such as gallons of water sold, gallons of wastewater treated, billing frequency, prevalence of miscellaneous charges. The survey includes 313 responses from utilities in the United States, some of them combined utilities that provide both water wastewater service. In total, 290 water utilities 214 wastewater utilities supplied data for this survey. Some utilities did not complete every question, a small amount of data that appeared to be inaccurate was not included. A number of analyses that are likely to be useful to the water wastewater industry have been conducted with the survey data. The median, which is the midpoint of the data with half the responses above half the responses below, generally provides a better representation of the total population than the average because it less likely to be skewed by outliers. However, averages still provide value are provided in some instances. Data analyses have been grouped into the following 12 primary areas: General Utility Information Rate Comparisons Rate Structures Fixed Charges Other Charges Billing Operations Capital Balance Sheet Conservation Efforts Income Statement Affordability Many of the analyses refer to charts, which appear in the back of the survey. Some of the more interesting survey facts findings from the 2012 survey are: Water wastewater charges increased by 13.7% 15.0%, respectively, for residential customers using 1,000 cubic feet (cf) of water a month between July 1, 2010, July 1, During the same period, the Consumer Price Index (CPI) for all urban customers increased by 5.1%. Between , water wastewater charges for residential customers using 1,000 cf per month have increased by 4.90% 5.19% annually, respectively, which is greater than the annual CPI increase of 2.50%. Large utilities (Group A) have the lowest water rates, smaller utilities (Group C) have the lowest wastewater rates. Water wastewater charges are highest in the Northeast. Water charges are lowest in the Midwest, wastewater charges are lowest in the West. 5 5

2 General Utility Information Even with the charge increases, water wastewater charges remain affordable as defined by the US Environmental Protection Agency. 3, 4 General Utility Information General utility information provides insight into the size type of utilities that participated in the rate survey. It is important to underst the sample group from which data are gathered when conducting any type of comparative analysis. Ownership The majority of the water wastewater utilities that responded are municipal utilities. Chart 1 (Water Utility Ownership) Chart 2 (Wastewater Utility Ownership) show the ownership classification for the water wastewater respondents. Service Population The survey includes utilities that serve populations ranging from approximately 1,000 to 9,000,000. Chart 3 (Median Service Population) shows the population by group (as defined in Part I of this report). It is interesting to note that the responding US water utilities serve approximately 37% of the US population the participating wastewater utilities serve approximately 27% of the US population. Accounts The median number of accounts of the respondents is summarized by group in Chart 4 (Median Number of Accounts). The median service population per account is for water wastewater, respectively. The median gallons per day of water sold or wastewater treated per account 3 Combined Sewer Overflows: Guidance for Financial Capability Assessment Schedule Development, USEPA, Publication 832-B , February, 1997, available for download at 4 Announcement of Small System Compliance Technolog y Lists for Existing National Primary Drinking Water Regulations Findings Concerning Variance Technologies, USEPA, Publication FRL , August, (including residential, commercial, industrial accounts) is , respectively. Rate Comparisons The rate comparisons described here are the focus of the survey. These comparisons provide an overview of the pricing trends within the water wastewater industry. Increases in Water Charges from 2010 Between July 2010 July 2012, the CPI for all urban consumers increased by 5.1%, or 2.52% annually. Comparing the data of utilities that participated in both the surveys, which covered roughly the same period, the average monthly water bill for a typical customer using 1,000 cubic feet (cf; 7,480 gallons) increased from $27.53 (2010) to $31.30 (2012), representing an increase of 13.7%, or 6.63% annually. When examining the discrete charges by each utility, charges decreased for 10 utilities, remained the same for 18 utilities, increased for 166 utilities. Of the 166 utilities that had rate increases, 40 had increases of greater than 20%. Increases in Wastewater Charges from 2010 Again, comparing the data of utilities that participated in both the 2010 the 2012 surveys, the average monthly wastewater bill for a typical customer with 1,000 cf (7,480 gallons) of usage increased from $34.18 to $39.31, representing an increase of 15%, or 7.24% annually. The charge decreased for 6 utilities, remained the same for 9 utilities, increased for 118 utilities. Thirty-two of the 118 utilities that had rate increases had increases of greater than 20%. Similar analyses have been conducted as a part of the previous rate studies. Chart 5 (Trends in Years) shows the biennial changes to charges over the past fourteen years as compared with the change in the CPI. Chart 6 (Annualized Charge Increases) shows the annualized charge increases compared with the CPI between

3 Rate Comparisons It is interesting to note that the water wastewater charge increases, 4.90% 5.19%, respectively, have significantly outpaced annualized inflationary increases, 2.50%. Comparison of Charges among Groups In the 2010 Rate, the median monthly water charges at 1,000 cf were lower for the larger Group A B utilities than the smaller Group C utilities, primarily reflecting the benefits of economies of scale. However, wastewater charges increased with the size of the utility. In the 2012 Rate, this same pattern holds for water wastewater rates. Several large utilities have implemented significant rate increases due to regulatory combined sewer overflow requirements, which have negated the savings associated with economies of scale. As observed in 2010, the 2012 Rate also shows that at higher usage levels, Group A median charges exceed Group C median charges. For wastewater, Group A utilities median charges were significantly higher than either Group B or Group C utilities at higher usage levels. Overall, Group B utilities appear to have the lowest rates, as was the case in the 2010 Rate. Chart 7 (Median Monthly Charges by Group) shows the median water wastewater charges by group for an average residential customer (1,000 cf per month). Chart 8 (Median Monthly Charges 10 by Region) shows the median water wastewater charges by geographic area for a typical residential customer (1,000 cf per month). Based on comparison of typical residential customer (1,000 cf per month) median charges, water wastewater rates are highest in the Northeast. The lowest water rates are in the Midwest, the lowest wastewater rates are in the West. Residential vs. Nonresidential Comparisons Many utilities have the same rate structure rates for residential nonresidential customers. However, cost-ofservice studies often indicate that residential nonresidential customers should have different levels of charges. To provide insight into the differences in rates, the monthly charges for a residential a commercial customer using 3,000 cf were compared. For water utilities, 50% had the same rates, 32% had higher residential rates, 18% had higher nonresidential rates, with the median charge being 4.5% higher for residential customers. For wastewater utilities, 53% had the same rates, 9% had higher residential rates, 38% had higher nonresidential rates, with the median charge being 12.7% lower for residential customers. The reason for the difference is that the wastewater charges may include some expectation of higher-strength wastewater discharge from nonresidential customers. Outside-City Differentials Many municipal utilities charge higher rates to retail customers located outside the city limits. The rationale for this is that customers within the city limits are owners of the system entitled to a fair rate of return on their infrastructure investment. Some states, such as Georgia, Indiana, Rhode Isl, require that the differential be based on a reasonable calculation of the rate under the utility approach. Other states allow differentials that are simply considered utility policy as approved by the utility s ruling body. Approximately 38% of responding water utilities 30% of responding wastewater utilities indicated that they have an outside-city differential. The outside-city differentials vary greatly, reaching as high as 200%. Rate Structures Improvements in billing system technology have allowed utilities to implement fairly complex rate structures in order to achieve specific pricing objectives. While the majority of utilities continue to use relatively simple rate structures, the survey results described herein indicate that utilities are considering alternative rate structures. 7

4 Rate Structures Water Rate Structures For communities with block rate structures for residential water service, the most common number of blocks is 3 or 4. Table 1 shows that communities using various block rate structures for residential water service in the current recent surveys are shifting away from decreasing block rates toward increasing block rates. Table 1. Water Rate Structure Distribution Decreasing block % Uniform % Increasing block % Total % Wastewater Rate Structures The two most typical methods for billing residential wastewater charges are the percentage of water use (49%) the percentage of water use with a cap (28%). A summary of the frequency of the use of these methodologies appears in Chart 9 (Residential Wastewater Billing Methods). The majority of utilities that base charges on water usage or nonseasonal water usage assume 100% of the water consumed is discharged. However, some utilities have undertaken studies to better approximate the measured volume of water that is actually discharged to the sewer system. Residential vs. Nonresidential For this survey, more than 49% of the responding water utilities more than 85% of the responding wastewater utilities indicated that they have the same rate structure for residential nonresidential customers. Responses to the 2010 Rate were approximately the same. Rates are not necessarily identical even under the same rate structure. The reason wastewater utilities are more likely to have the same residential nonresidential rate structure is that they are much more likely to have uniform rates for both customers classes because customer peaking is not an issue; instead, peaks are generally the result of storm events. Those water utilities with different rate structures generally shift from an increasing block rate structure for residential customers to a uniform or decreasing block rate structure for nonresidential customers. For example, 52% of water utilities have an increasing block for residential customers, but only 28% have an increasing block for nonresidential customers. Wastewater utilities with different rate structures generally shift from flat or increasing block rates for residential customers to uniform rates for nonresidential customers. Fixed Charges Most utilities charge a fixed (base, minimum, monthly, or meter) charge a volumetric (consumption) charge. Fixed-charge revenue is an important component of a utility s anticipated revenues, fixed charges can be a high percentage of a customer s bill. Utilities differ on the costs that they recover from meter charges. The fixed charge almost always includes meter reading costs, billing, collection costs. Many utilities also include meter repair replacement as well as a capacity charge. Fixed Charges by Meter Size Since meter repair replacement capacity charges vary by meter size, many utilities have meter charges that vary by meter size. The median monthly service charge for a 4-inch meter is much greater for water service ($108.97) than for wastewater service ($30.06). It is interesting that there are such differences in meter charges between water wastewater utilities. The reason for this is likely the opinion that most of the meter-related charge should be borne by water customers because the meter is more directly related to water service. 8

5 Other Charges Median Fixed Charges The monthly base or minimum charge for the median water customer ($8.70) comprises 29.1% of the total water bill at 1,000 cf (7,480 gallons) of usage ($29.82). The monthly base or minimum base charge for the median wastewater customer ($10.88) comprises 28.9% of the total wastewater bill at 1,000 cf of usage ($37.59). Minimum Charges Many utilities have a fixed charge that includes an allowance for a specified volume of usage. Such a charge is called a minimum charge. In this survey, 65 water 45 wastewater utilities reported that they have a minimum charge. Minimum charges are higher than base charges because they include usage. The amount of usage included varies, with 2,000 gallons the median for water wastewater utilities. Other Charges Other miscellaneous charges are also an important part of a utility s revenue stream. While these charges don t often receive the attention of the fixed volumetric water wastewater rates, they are necessary to ensure that customers are paying for the services provided to them. Service Connection Capital Recovery Charges The majority of utilities have service connection fees capital recovery charges. Of the survey respondents that reported such fees or charges, 89% of water 78% of wastewater utilities have service connection fees, 65% of water 69% of wastewater utilities have capital recovery charges. The median service connection fee for water wastewater appears in Table 2, as does the median capital recovery charges for water wastewater.. Table 2. Median Connection Capital Recovery Charges Water (n = 246, 178) Wastewater (n = 155, 1347) Service Connection Fee $800 $668 Capital Recovery Charge $1,672 $2,190 Service connection charges capital recovery charges have a number of different names. Service connection fees are charges for tapping into the main service running a line to the meter. Capital recovery charges are charges for buying into the existing system or charges that recognize the cost of adding new capacity to the system. While this survey aims to segregate service connection fees capital recovery charges, many utilities combine these charges; this should be kept in mind when using the data in Table 2. High-Strength Surcharges The majority of responding wastewater utilities impose highstrength surcharges for biological or chemical oxygen dem (BOD/COD) total suspended solids (TSS), with utilities reporting surcharges for these parameters, respectively. For those utilities reporting a charge per pound, the median surcharges for BOD TSS were $0.25 $0.22, respectively. The BOD TSS charges increased from $0.24 $0.20, respectively, from the 2010 Rate. A charge per thous gallons was included in Exhibit 6 where applicable. Other Surcharges A few utilities have implemented additional surcharges for costs that have recently or are expected to significantly increase. Utilities provided information on whether special surcharges were implemented for environmental regulatory compliance, security, /or infrastructure rehabilitation. 9

6 Billing Table 3 summarizes the number of utilities with these different types of surcharges. The numbers of utilities with these surcharges is similar to the numbers in the 2010 Rate. Table 3. Number of Utilities with Different Types of Surcharges Water Wastewater Environmental Security 2 1 Infrastructure Rehabilitation Billing Utilities need to fully consider the ramifications of different billing cycles to revenue collection. A longer billing cycle results in lower billing costs but can hamper collections because the amounts billed are larger, an extended time between bills hinders customers ability to identify modify their dem patterns. Billing Cycle The most popular billing cycle for residential customers is monthly, with 67% 72% of the responding water wastewater utilities reporting monthly residential billing cycles, respectively. Bimonthly quarterly are the next most popular billing frequencies, with each being employed by 16% 12%, respectively, of the water utilities 15% 10%, respectively, of the wastewater utilities. Of the 290 water respondents that provided billing cycle information for both residential nonresidential customers, 67% have the same billing cycle for both customer classes. Generally those utilities that have different billing cycles have a shorter billing cycle for nonresidential customers. Effective Date The majority of the responding water wastewater utilities have rates that became effective on or after January 1, Chart 10 (Water Rates Effective Dates) Chart 11 (Wastewater Rates Effective Dates) provide summaries of the effective dates. There is not a particular month in which rates primarily become effective. Measurement Units Water is measured billed in cubic feet (typically 100-cf increments) by 49% of the responding utilities. The rest, except for one, measure bill in US gallons (typically 1,000-gallon increments). Conservation Efforts Conservation the efficient use of water resources is a primary objective of many utilities. Utilities typically implement a water conservation program to satisfy this objective. There can be many different components to conservation programs as described in the following sections. Conservation Program Components Table 4 shows the number of water utilities that have each of the different types of conservation program components. Conservation programs are typically tailored for specific utility community needs can include an array of different components. 10

7 Operations Table 4. Number of Utilities Reporting Conservation Programs by Type Program Number of Utilities Dem Management 60 Source Protection 130 Xeriscape 64 Education 209 Interior Plumbing Retrofits 78 Integrated Resource Plan 67 Lscape Audits 72 Low-Volume Discounts 25 Citizen Committees 63 Low-Income Discounts 45 Other 36 Seasonal Rates In addition to these program components, many utilities have implemented a rate structure that provides incentives to customers to be efficient water users. An example is a seasonal rate structure, which is designed to impose higher rates during peak usage periods. Of the 290 participants, 35 have seasonal rates. Water Restrictions Of the responding utilities, 181 (56%) indicated that they had no water restrictions at any point during the past year. Of the other utilities, 59 had voluntary restrictions, 65 had matory restrictions, 18 had voluntary matory restrictions. Operations The rate survey does not delve deeply into the operations of the utilities, but the following metrics can gauge a utility s operating environment. Number of Employees The median number of employees is 79 for water utility respondents 71 for wastewater utility respondents. Water Sources Three water sources are available to utilities: ground, surface, purchased water. The weighted average source for the participants is 30.97%, 50.27%, 16.35% for ground, surface, purchased water, respectively. Ninety percent (90%) of water utility respondents use predominantly a single source of water. Of those utilities, 64 use groundwater, 117 use surface water, 29 purchase water. Production Ratios The 2012 Rate results show that the median water sold per employee per day is 0.26 MGD the median wastewater treated per employee per day is 0.26 MGD. In addition to employee normalized production, three other water production ratios are important to utility operations commonly used in rate setting: maximum (max) day to average day, average day to capacity, max day to capacity. These ratios identify when utilities need to begin developing new (or exp existing) water sources. They also provide insight into customer consumption patterns. Table 5 summarizes the median average of these three ratios as determined from the surveys. Utilities with a max-day-to-average-day ratio much greater than the median value may want to consider implementing a conservation rate to try to mitigate the peak. Utilities with an average-day-to-capacity ratio much greater than the median value or a high max-day-to-capacity ratio (much greater than the median value) may need to examine ways to increase capacity. Table 5. Average Median Production Ratios Average Median Max day to average day Average day to capacity Max day to capacity

8 Capital Fiscal Year The differences in fiscal years can make comparison of financial data difficult. For example, in comparing fiscal year revenues, one utility may have a six-month lag, which can lead to distorted results. There are three primary ending dates for utility fiscal years: June 30, December 31, September 30. These ending dates are employed by 48%, 29%, 18% of the responding water utilities, respectively. Capital Capital costs are likely to play a more prominent role in the financial aspects of utility management as infrastructure rehabilitation becomes an integral component of capital improvement plans. As presented in Chart 12 (Median Capital Needs by Group [in thouss of dollars]), the 2012 median annual capital needs for water wastewater for each group were somewhat similar, with the exception of Group A where the wastewater needs are more than double the water capital needs. Income Statement A utility s income statement provides insight into the financial health of a utility. However, because utilities categorize revenues costs in different ways, comparing utilities on a line-by-line basis is not always possible. Tables 6 7 summarize the average revenue operating expenses for water wastewater survey participants. For water utilities, operating expenses are about 63% of revenues, while for wastewater utilities, operating expenses are about 53% of revenues. Table 6. Average Water Income Statement Data in $millions Group A (n = 34) Group B (n = 61) Group C (n = 101) All (n = 196) Revenues Operating Expenses Table 7. Average Wastewater Income Statement Data in $millions Group A (n = 18) Group B (n = 38) Group C (n = 77) All (n = 133) Revenues Operating Expenses Balance Sheet The balance sheet also provides information that is relevant to the financial position of a utility. Like the income statement, the balance sheet is scrutinized by rating agencies in determining the financial health of a utility. A number of important ratios can be calculated from balance sheet data. One example is the debt-to-equity (capital structure) ratio. A rule of thumb is that the debt to equity should be below 1.0. From the 2012 survey, the median debtto-equity ratios are for water wastewater utilities, respectively. It is interesting to note that the median debt-to-equity ratios have remained similar in recent years, from 0.36 to 0.41 for water utilities from 0.47 to 0.50 for wastewater utilities from 2006 to Tables 8 9 summarize the averages of various water wastewater balance sheet data by group. 12

9 Affordability Table 8. Average Water Balance Sheet Data in $millions Group A (n = 34) Group B (n = 55) Group C (n = 82) All (n = 171) Total Assets 1, Long-Term Debt 1, Equity Table 9. Average Wastewater Balance Sheet Data in $millions Group A (n = 16) Group B (n = 33) Group C (n = 66) All (n = 115) Total Assets 2, Long-Term Debt 1, Equity Affordability Affordability continues to be a critical issue as the prices of water wastewater services rise. Many utilities are examining different approaches for assisting those residential customers who truly cannot afford to pay for their water wastewater service. Affordability Programs Utility managers public officials are becoming more concerned about the affordability of water. In response, utilities are investigating different programs to assist those individual customers who may have difficulty paying for water wastewater service. Of the utilities surveyed, 45 had a low-income assistance program 25 had a lowvolume discount program. Affordability Percentages The median affordability percentage for water wastewater customers with 1,000 cf (7,480 gallons) of usage is 0.71% 0.90%, respectively. These percentages are well below USEPA s affordability guidelines of 2.5% for water service 3 2% for wastewater service. 4 In fact, only 54 of the 193 combined utilities that responded with both water wastewater residential charges had a total (water plus wastewater) median affordability percentage of greater than 2% at this usage level. Acronym List BOD biological oxygen dem cf cubic feet Ccf hundred cubic feet COD chemical oxygen dem CPI Consumer Price Index (for all urban consumers) DB decreasing block IB increasing block MGD million gallons per day MHI median household income N/A not applicable N/R not responding TSS total suspended solids USEPA US Environmental Protection Agency FY fiscal year 3 Announcement of Small System Compliance Technolog y Lists for Existing National Primary Drinking Water Regulations Findings Concerning Variance Technologies, USEPA, Publication FRL , August, Combined Sewer Overflows: Guidance for Financial Capability Assessment Schedule Development, USEPA, Publication 832-B , February, 1997, available for download at 13