When utility regulation fails, democracy fails
The utility failures in the Lone Star State last week cascaded into a disaster when extreme weather hit an isolated electrical grid.* But more than a natural or engineering catastrophe, the disaster that unfolded in Texas was a regulatory failure. The institutions that govern utilities did not function as they should, and the resulting debacle was literally deadly. That institutional failure will reverberate in political memory long after electricity and water are restored; where essential services like energy and water are concerned, regulatory failure undermines legitimacy of government itself.
Utility regulation & the Texas disaster
With their high fixed costs, significant barriers to entry, and huge economies of scale, utilities are natural monopolies. The trouble with monopolies is that they are not subject to market competition, and so producers can get away with selling lousy products and charging absurdly high prices. To get around this problem, states rely on Public Utilities Commissions (PUCs) to ensure quality, reliability, and fair pricing for utilities. Commissioners and their staffs of professional engineers, economists, lawyers, and other experts act as checks against monopoly abuses by setting rules for utility service quality and limiting pricing.
The disaster in Texas last week is a vivid illustration of what can happen when regulators shirk that responsibility. The PUC considered strengthening weatherization rules for energy producers following cold weather events over the past decade. But energy producers resisted weatherization rules due to compliance costs, and regulators ultimately did not force producers to weatherize adequately. The PUC’s timidity might be a case of “regulatory capture,” but it also could be that the Commissioners simply decided that weatherproofing wasn’t a high priority. The state’s regulatory regime also fostered incentives that emphasized short-run pricing over system resilience. These decisions may have led to lower overall energy prices in the Lone Star State**, but they also left the state’s energy grid less resilient and more vulnerable to extreme winter weather.
When an arctic blast hit, energy production faltered. Energy failures cascaded into water system failures, as pipes froze and pumps and treatment systems failed. More than a week after the cold snap hit, many Texas communities are still struggling to get water systems functioning properly, to say nothing of the countless homeowners whose pipes burst as temperatures plunged. None of these problems was unforeseeable or beyond engineers’ ability to manager; they were all preventable.
Water, energy, and legitimacy
The legitimacy of any government rests on its ability to secure its people’s basic needs—and it doesn’t get any more basic than a warm home and safe drinking water. There is more at stake in utility regulation than efficient investment or fair pricing: basic services are cornerstones of political legitimacy.A few years ago, I worked with Texas A&M’s ISTPP on a national public opinion survey that asked standard questions about trust in government, and later about people’s experiences with tap water. We found that people who experience bad-tasting, dirty, or low-pressure tap water service were significantly less trusting of their local government—even after adjusting for partisanship, gender, race, ethnicity, age, income, and home ownership:
These findings are hardly surprising, but underscore just how central water is to the health of the Republic. When basic services fail, citizens understandably lose faith in the officials responsible for protecting the public. In that sense, the PUCs and other obscure technocratic agencies that regulate basic services are bulwarks of democracy. In a moment when mistrust of government is rampant and the nation’s political fabric is frayed, getting basic services right is more important than ever.†
*I moved to Madison from Houston six months ago. Who would have guessed that my first winter in Wisconsin would have been easier to manage?
**Maybe. Kind of. Energy pricing is complicated.
†I just completed a book manuscript with Samantha Zuhlke & David Switzer that uses Americans’ drinking water choices to explore the ways that basic services shape consumer behavior and citizen trust in government; the graph in this post is a sneak preview. More on that project in the months ahead...
Managing the $638 million low-income water & sewer assistance in the federal COVID relief package
As frequent readers of this page likely know, the COVID relief bill that Congress passed in December included $638 million for low-income water and sewer bill assistance. Despite its high-falootin’ mouthful of a name, the Low-Income Household Drinking Water and Wastewater Emergency Assistance Program (LIHDWWEAP?*) has the feel of a last-minute provision tossed into the package. The $638M program got just 1.5 pages in Section 533 of the mammoth 5,593 page law, with little guidance on how the program will be structured or administered. Meanwhile, a new presidential administration has just taken office and is still trying to get organized. Advocates, regulators, and water sector managers are puzzled about how to manage the program and what it might mean for future federal forays into water affordability; I’ve been fielding lots of calls and messages on this issue over the past month.
Frequent readers also know that there are good reasons to be sober in our expectations of how much means-tested assistance can really help water affordability. But means-tested assistance is what Congress has cooking, and it's a useful part of an affordability strategy. So here I’ll do my best to summarize what we know about LIHDWWEAP (I’m going to call it LĬD-wēp , or LID-weep) administration and offer some ideas to the people charged with putting it into action.
Section 533 doesn’t say much about how LIHDWWEAP is supposed to work, but here are the basics. The program is to be administered by the Department of Health and Human Services (HHS), not EPA. That’s important because HHS already runs LIHEAP, the federal Low-Income Home Energy Assistance Program; Congress probably figures water utilities are a lot like energy utilities.**
HHS will not administer LIHDWWEAP directly. Rather, the program is structured as a set of grants to state and tribal governments. HHS is supposed to allot grants to each state and tribe based on the size of their populations under 150% of federal poverty levels and the share of the population that spends more than 30% of monthly income on housing. HHS hasn’t yet set the allotment formula, and it’s going to take at least several months of rulemaking before a dime gets to the states.
In turn, state governments will send funds to water utilities. Each state will have its own method for allocating funds to utilities and rules for the use of those funds. Section 533 says only that LIHDWWEAP is supposed to reduce water bill debt or service rates for “low-income households, particularly those with the lowest incomes, that pay a high proportion of household income for drinking water and wastewater services.” The law does not define “low-income” or “high proportion.” Section 533 directs HHS to use existing administrative procedures to the extent possible, but ultimately it will be up to water and sewer utilities to get the LIHDWWEAP money to the people who need it.
Congress just told HHS, hundreds of state and tribal agencies, and tens of thousands of utilities to provide means-tested assistance for low-income water/sewer customers. To be blunt, nobody really knows how to do that. Many utilities currently provide means-tested assistance or rate reduction programs, but to my knowledge there has never been a systematic study of U.S. water assistance program design, implementation or impact.† We’re more or less flying blind here.
All I can say definitively about LIHDWWEAP implementation is:
Having said that, I’ve worked with lots of utilities, I've seen a lot of assistance programs, and I know some things about water rates and public management. So with all appropriate caveats, here are some thoughts on how to implement the version of LIHDWWEAP that Congress just created. In crafting these educated guesses, I assume that state agencies and utility managers want to help low-income people as quickly and effectively as possible, and that strategic positioning for future LIHDWWEAP is a secondary concern.
Counsel for state administrators
Once HHS determines your state’s LIHDWWEAP allotment:
- Use a simple formula to allocate funds. Don’t bother trying to gather data on arrears or water debt and run sophisticated analyses to see which utilities “need” the most funding. That will take time and require data that lots of utilities can’t get readily, and funding is pretty meager anyway (it works out to about $10 for every person in the U.S. with income under 150% of poverty) so complexity would just slow things down. Just distribute funds to utilities as a function of service population and poverty rate. Where water and sewer services are offered by different organizations, just split them in half. No need for fancy allocation methods.
- Build a two-tiered system. Your state has hundreds of water and sewer utilities. A few of them are large, serving tens of thousands to maybe more than a million people. Those big utilities are professionalized organizations with hundreds to thousands of employees. But most of your state’s water and sewer utilities are very small, serving populations of less than 10,000 and employing fewer than a dozen people—maybe just one or two part-timers. Set up separate LIHDWWEAP implementation processes for big and small systems. The right size cut-off will vary from state to state, but I’d suggest a threshold of something like 50,000 in service population.
- Give big systems funds and get out of the way. Those large utilities probably have pretty good billing and accounting systems to track water/sewer debt, and they have a good idea how many customers may need assistance—lots of big utilities already have means-tested assistance, debt forgiveness, or rates in place. Send these big utilities their share of the LIHDWWEAP funds and let them use existing programs or create locally-tailored systems to get funds to customers who need it. Ask for a simple one-page report at the end of the year to tell you how they spent the money and how much they have left.
- Set up third-party administration for small systems. Your state’s small utilities already have a lot on their plates. Many have antiquated billing systems—maybe even paper ledgers—and poor or hard-to-manage account records. Most won’t have the organizational bandwidth to do the accounting, auditing, and reporting for LIHDWWEAP, let alone the capacity to handle means-testing. Even moderately-sized utilities (serving say 25,000) will not want to invest in administration of a LIHDWWEAP program that isn’t very generous. Instead, allocate funds to small systems, and then set up boilerplate memoranda of understanding (MOUs) that pool the small systems’ funds into funds to be administered by regional or county-level social service agencies that already manage means-tested programs. Allow funds to be distributed to any income-qualified resident of the small systems’ service areas. Don’t bother tying back benefits to specific bills or water debts.
Counsel for utilities
Once your state administrator allocates your LIHDWWEAP funds, they will probably come with some rules. Everything that follows carries the caveat: “…if state and federal regulations allow.”
- Use existing programs. If you already have a means-tested assistance or discount program that seems to work, just funnel the LIHDWWEAP funds into it and expand outreach and eligibility as much possible. In many cases the new program won't give very much money. Many existing programs target specific segments of the population (e.g., elderly, disabled); these should be expanded to include any income-qualified customers.
- Focus on shut-offs. If you don’t already have a means-tested assistance/discount program or your program doesn’t work very well, use LIHDWWEAP funds to manage (preferably eliminate) shut-offs for nonpayment. Setting up, publicizing, and administering an effective assistance program takes a lot of time. To help people right away, stick the LIHDWWEAP money into a dedicated account. When a residential customer account falls into serious delinquency and is at risk of shutoff, contact the customer and ask if (s)he qualifies for assistance by whatever guidelines are adopted locally. Make that process as easy as possible. If a customer slated for shut-off qualifies, just use the LIHDWWEAP funds to pay off the debt and maintain service. You can do this literally up to the moment when the utility crew shows up to shut the water off (but preferably earlier). Once a permanent assistance/discount program is up and running, any remaining LIHDWWEAP funds can supplement it.
- Work together. All of this stuff is easier to manage in larger organizations. If your utility doesn’t have the organizational capacity to take on LIHDWWEAP administration, cooperate with other utilities and/or organizations in your area to save on administrative costs while helping your customers in need.
LIHDWWEAP might have been a congressional afterthought jammed into an overstuffed emergency relief package, but it portends more federal water assistance to come. LIHEAP-style assistance seems to be the congressional Democrats’ preferred instrument for addressing water affordability. Congress and HHS will be watching as states and utilities grope toward administrative processes. Next time Congress takes up LIHDWWEAP, they'll probably have more than 300 words to say about how to carry it out.
*Y’all Capitol Hill people really need to think through the acronymic implications of the names you stick on programs.
**They’re not, really.
†We badly need such a study, but serious evaluation (i.e., rigorous analysis, not cherry-picked case studies) won’t be easy or cheap. Got a couple hundred grand to sponsor such a study? HMU!