From Sewer

Rapid Relief

How the federal government might end shutoffs & keep water flowing during the COVID-19 crisis

Can't do this if your water has been shut off.

The COVID-19 crisis has escalated America’s water and sewer affordability challenge into a full-blown health emergency. Many low-income households struggle to pay for these essential services in the best of times, and the specter of shutoffs for non-payment now threatens to worsen the pandemic. It’s hard to wash hands, cook at home, and maintain adequate sanitation without water service.

In response to the fast-moving crisis, scores of utilities are suspending shutoffs and restoring service for the duration of the pandemic. That is a prudent move in this emergency, but suspending shutoffs and restoring service carries significant financial risks for utilities and does not fundamentally solve the affordability problem, even in the short-run. An end to shutoffs does not mean an end to high prices, late fees, or penalties. When the crisis passes, many customers will still have outstanding balances running into the thousands of dollars and once again face the threat of shut-offs. Meanwhile, in plenty of places shutoffs continue even as COVID-19 rages.

Good news: utilities restoring service. Bad news: the bill is still due.

Federal water bill relief?

Last week Congress passed a monumental $2 trillion economic rescue package in response to the COVID-19 crisis sweeping the country. During the helter-skelter Capitol Hill negotiations over the COVID-19 bill, House members proposed $1.5 billion in water assistance relief for low-income households. Modeled after LIHEAP, the federal low-income energy assistance program, the proposal would have provided financial assistance to income-qualified households to help pay for water bills through existing LIHEAP administrative processes. The proposal didn’t make it into the bill that finally reached President Trump’s desk.

Although the water bill assistance would surely have helped many, it would likely have made little difference in the big picture. For starters, while $1.5 billion is a lot of money, means-tested assistance programs are costly to administer and burdensome for customers who need help. This sort of relief can help, but will take time to work its way through administrative processes and into consumers’ accounts to prevent shutoffs. Even at their best, means-tested programs help a small fraction of the eligible population—historically LIHEAP has reached only about 16% of those eligible for assistance. Complicating matters is the extreme fragmentation of the U.S. water sector, with 50,000 mostly small water systems operating across the country. Some of the poorest Americans live in small communities where utilities’ and social service organizations have limited capacity to administer assistance. The need for immediate relief in the face of a pandemic demands faster, farther-reaching action.

Bigger, bolder, faster action*

So what might work better? I’ve long argued that pricing, not assistance programs, is the best way to tackle water affordability. With the pandemic upon us and a massive, emergency need for universal in-home water and sanitation, it’s worth considering a similarly massive, emergency financial response. Here’s an outline of a scheme that could quickly end shutoffs and maximize short-term affordability relief with the lowest management cost to utilities and zero administrative burdens on customers.

The federal government should provide formulaic, conditional grants directly to water utilities. Grants would be awarded as a percentage of each utility’s budgeted 2020 annual rate revenue, with the percentage equal to the community’s poverty rate. For example, Seattle Public Utilities’ 2020 budget calls for $205 million in water revenue and about 12% of its population lives in poverty, so its grant would be $24.6 million. Detroit’s budgeted water rate revenue for 2019-2020 is $131 million and its poverty rate is 33%, so its grant would be $43.2 million.

In exchange for this cash injection, utilities would have to meet simple conditions on pricing and customer administration. Specifically, for the duration of the national COVID-19 pandemic, utilities would:

  • End residential shutoffs for non-payment;
  • Restore service to all occupied residences currently shut off;
  • End residential foreclosures and financial penalties for non-payment or service restoration;
  • Forgive all outstanding penalties, fees, and interest on residential water accounts;
  • Structure prices so that 6,000 gallons of monthly residential water and sewer service costs less than $58 (eight hours of labor at federal minimum wage).

All community water systems that operate on a fee-for-service basis would qualify, including municipal, tribal, special district, and investor-owned systems. Utilities could use the money to offset revenue losses due to COVID-19 crisis, fund assistance programs, or maintain and improve capital.

Federal funds would be channeled from EPA through existing state Drinking Water Revolving Funds directly into utility coffers, requiring very little additional administrative capacity. There would be no administrative burden at all on customers. Administration for very small systems could be managed through state or county governments.

Wonder Twin Powers - ACTIVATE!

With annual water utility revenue totaling something like $70 billion and a national poverty rate of 11.8%, the program would end up costing around $8.5 billion dollars. For another $10 billion we could extend the program to cover sewer revenue, too. Until last week, those would seem like absurdly large sums, but they’re rounding errors in the $2 trillion-dollar package that Congress just approved.

Emergency & aftermath

To be clear, this isn’t a carefully considered, meticulously modeled plan—it’s an idea meant to get water flowing immediately in response to an urgent need. These are big, blunt policy instruments, but the proposal outlined here could be introduced on Monday​, signed into law by Wednesday, and water service restored in communities across the country by Friday. ​In a pandemic every moment matters.

​Lasting, sustainable solutions for the water sector will require more fundamental reforms to the way that we govern, finance, and manage these critical systems. I hope that once the COVID-19 storm fades, a renewed commitment to improving the American water sector is one of its silver linings.


*Thanks to Wendi Wilkes for prompting and helping me think this through via Twitter. She deserves a share of the credit if you like this idea, but no blame if you hate it.

Introducing the Amy Poehler Index

Understanding progressive & regressive water pricing

It's irrigation season, everybody!

By Antonio & Manny Teodoro

How do utilities distribute the costs of drinking water systems to their customers in their rate structures?

The answer is surprisingly complicated, and water utility pricing is often weird. There are lots of other wrinkles and variations, but the vast majority of utilities use one of three basic rate structures:

  1. Uniform, where customers pay the same price for every unit of water that they consume;
  2. Inclining block, which charge higher prices as volume increases; and
  3. Declining block, which charge lower prices as volume increases.

It’s easy to see that these different rate structures distribute costs differently, but how much differently isn’t immediately obvious. How do a utility’s rates apply to low-volume customers compared with high-volume customers?

Progressivity

The answer is important because it carries ​significant implications for affordability and conservation. It also speaks to risk tolerance and questions about fairness. Water is an unusual consumer good because its use is very different at different volumes. For residential customers, low volumes are mostly used for basic needs like drinking, cooking, cleaning and sanitation. Higher volumes are usually for more discretionary uses like lawn irrigation and car washing.

Studies of water rate structures typically put them into the three main categories (uniform, inclining, and declining), which is fine, but can mask some important variation within the inclining and declining blocks. Consider four imaginary rate structures:

A and B are both inclining block rates, but A is more progressive than B because prices increase sharply for A as volume increases. Similarly, C and D are both declining block structures, but C is more regressive than D because ​C discounts higher volumes much more than D.

David Switzer developed a way to measure water rate progressivity​ to reflect that variation, and published a paper last year that uses regression slopes to measure relative progressivity. It’s a creative, rigorous, and smart methodology, but it’s pretty sophisticated and not the easiest approach for communicating with the general public.

In search of a valid but more intuitive way to communicate the idea of progressivity, we struck upon the idea of comparing average unit costs of water at relatively conservative and very high benchmark volumes. What would be appropriate comparative volumes? And how could we frame the measurement in an engaging way?

Enter Amy Poehler

​Amy Poehler was a particularly profligate water customer. In the summer of 2015, while drought ravaged the Golden State, the Parks & Recreation ​star’s Beverly Hills home used 85,000 gallons a month. Meanwhile, a family of four that is fairly conservative with water uses something like 6,000 gallons per month for drinking, cooking, and sanitation.* In other words, Poehler’s home consumed in about two days enough water to comfortably supply a family of four for a month.

​Poehler's house. Maybe she's got a dialysis clinic in the basement?

Shaming celebrities for bad environmental behavior is now something of a ritual in America, and it’s not clear whether exposing excess actually helps. But Poehler’s water consumption provides a convenient benchmark for excess.

The Amy Poehler Index

So to measure progressivity we calculate the total monthly water and sewer bill—including both fixed and volumetric charges—for a customer at 6,000 gallons (a conservative family) and at 85,000 gallons (Amy Poehler’s family), then divide that price by each customer’s total volume. These are average unit costs. The ratio of the two unit prices is the Amy Poehler Index (API). A value of 1.0 means that Amy Poehler and the conservative family pay exactly the same unit price for water. Values less than 1.0 indicate regressive rates (Amy Poehler pays less than a conservative family), and values greater than 1.0 indicate progressive rates (Amy Poehler pays more than a conservative family).

Let’s look at how this works for a couple of large U.S. city water systems under their 2019 rates:

In 2019 Tampa’s fixed monthly charge for water was just $1.50, with no fixed charge at all for sewer. Under Tampa’s inclined five-block rate structure, Amy Poehler would pay $617.82 monthly, while our conservative family would pay just $19.29. On a unit cost basis, those prices equal $7.27 and $3.22 per thousand gallons, respectively. The resulting API is a progressive 2.26.

​Meanwhile, in 2019 Philadelphia charged its customers a fixed $5.12 for water and $7.04 for sewer each month. The City of Brotherly Love then applied declining block water rates that would have charged Amy Poehler $455.69 monthly, and the conservative household $41.10—more than twice the Tampa bill for the same volume. The resulting unit costs turn out to be $5.36 for Amy Poehler and $6.85 for our conservative family, for a regressive API of .78.

The National Progressivity Picture

We used data from the Teodoro & Saywitz 2019 affordability update to calculate API for a nationally representative sample of 399 U.S. water and sewer systems. Average combined water and sewer rates were slightly regressive at .88, but ranged widely from .07 in Anchorage, AK to 3.81 in Phoenix, AZ.

API isn’t as precise as Switzer’s progressivity coefficient, but in our national dataset the two metrics correlate pretty well (ρ=.71). More importantly, the API offers an easy way to understand and improve the ways that communities distribute costs through their rate structures. That seems like the sort of thing Leslie Knope would probably dig.



*That’s about 50 gallons per person per day (gpcd) for a four-person household. 50 gpcd is an indoor efficiency standards for California and Texas.


© 2019 Antonio Teodoro & Manny Teodoro

Prevent Defense

Playing  to win  not to lose in water utility management

Nature's Prevent Defense

Warning: strained sports metaphor coming.

It’s late January, and the National Football League season soon reaches its climax with the Super Bowl. Both of last weekend’s conference championship games saw a high-octane home team take the lead. By late in the game, the winning teams’ strategies shifted from trying to score to trying to run out the clock. That meant lots of prevent defense, a tactic familiar to any reasonably attentive American football fan.

Prevent defense is an ultra-conservative strategy, designed to use up time and avoid disastrous, long passing plays—the goal is not really to stop the opposing team, but rather to manage moderate losses. A coach who deploys a prevent defense isn’t so much trying to win as he is trying to avoid losing. That works fine when the team that’s ahead has a comfortable lead. But when the lead is tenuous, prevent defense courts disaster because it can allow a quarterback to lead a heroic comeback. Legendary NFL coach John Madden famously declared that: “All a prevent defense does is prevent you from winning.” 

This didn't end well for the Cleveland Browns

Naturally, all of this makes me think about water utility management.

Compliance as performance

A few years ago I took a water operator training class through Texas A&M Engineering Extension. The course covered principles of safe operations, along with the basic math, chemistry, and physics that operators need. What really stood out to me was how virtually everything about our training involved regulatory compliance. Treatment plant operations, distribution system maintenance, even safety protocols, were all framed in terms of following rules and avoiding violations.

Things don’t seem much different in utilities’ executive suites or board rooms. Although the rhetoric of excellence abounds in water management circles, real policy decisions and capital investments tend to follow regulatory requirements. Treatment plant upgrades happen when the EPA formulates a new rule. Sewer capacity expansions come when overflows become so frequent and egregious that regulators force a consent decree.

A water system’s strategic goal might be public health, environmental quality, citizen trust, and economic prosperity, but the utilities’ management tactics often boil down to regulatory compliance. The practical goal is not so much to achieve good things, but to avoid bad ones.

The main reason is money. One of the challenges of managing great water and sewer systems is that the price of a water is much more visible than quality of water. Customers—who are also voters—know for sure what they pay for it when they get the bill each month. Water systems are literally buried. Unless quality is egregiously awful, the only marker of a system’s quality is regulatory compliance. It’s hard for utilities to demonstrate their real value in terms of anything but monthly bills and disasters.

Utility leaders are thus stuck between a rate increase rock and a regulatory hard place. For many, “success” means avoiding rate increases and regulatory violations as long as possible. The folks who operate these essential systems don’t like running them to the brink of failure, but as one city utility executive told me: “It’s hard to get anything done without a regulatory boot to your backside.”

That’s a fundamentally negative way to think about performance. Is it any wonder that utility managers often run a prevent defense?

From loss avoidance to winning

There are some creative, dynamic, and courageous leaders in the water sector who have found ways to build achievement cultures in their utilities. But hoping for the serendipitous arrival of an exceptional leader isn’t really a strategy. What would it take to change the game? How can we get utility leaders to think about seeking success, rather than avoiding failure?

What’s needed is a comprehensive, independent, and visible system for monitoring and reporting water and sewer utility performance. What if there were monthly box scores for utilities? What if they received a report card and grade point average every year, with results reported publicly?

Would this report card be good enough for you?

Aquam cum laude

This isn’t really a radical idea; Congress had transparency in mind when it required utilities systems to provide water quality reports, and the State of New Jersey was thinking about political accountability when it launched the Water Quality Accountability Act. Too often we forget that public information about water system performance also creates a credit-claiming opportunity. But reporting under those laws is complicated and in many ways opaque.

​Anyone who has been to high school understands grades and GPAs. A simple, comprehensive report card would give a utility’s leaders a way to communicate progress. A new management team could set clear improvement targets and show how their efforts moved the system’s GPA from 2.7 to 3.5. Mayors and councilmembers could trumpet the improvements, helping to demonstrate the value of those unpleasant rate increases. Water systems that achieve and maintain consistent excellence across the board would qualify for the Dean’s List.

I’m a big believer in the power of measurement and incentives. If we keep score correctly, our utility leaders can do more than avoid disaster—they can play to win health, environmental quality, and economic prosperity for our communities.


© 2020 Manny P. Teodoro