Sometimes there’s a little to say about a lot of things. Welcome to Variable Flow.*

Congress giveth, Congress taketh away

The debt ceiling drama that recently roiled D.C. culminated in the Fiscal Responsibility Act. As part of President Biden’s deal with Speaker McCarthy, the US Treasury will claw back remaining unspent COVID relief funds.

Clawing back those LIHWAP funds will have little immediate impact, since there’s very little to claw back at this point. The debt ceiling deal applies only to remaining unspent funds, and LIHWAP was set to expire in 2023 anyway. LIHWAP had already used $873 million of its $1.1 billion budget by the end of last year, and my friends in state agencies tell me that they’ve been hustling to distribute those funds. Whatever is left will now have to go back to Uncle Sam.

LIHWAP’s accelerated demise under the debt ceiling deal is more interesting for what it says about the prospects of a permanent, stand-alone water/sewer bill assistance program. Utility organizations and anti-poverty advocates have been lobbying for one, but a 118^th Congress bent on pruning back welfare spending seems unlikely to approve a permanent LIHWAP-type substance of any significant size. My best guess? Either: a) Congress allows LIWHAP to limp along with minimal funding that grows a bit when Democrats are in charge and shrinks a bit when Republicans are in charge; or b) LIHWAP quietly goes away with the rest of the pandemic alphabet soup. We’ll see.

Yep

A new article in Journal AWWA affirms with a bunch of new data and some careful analysis what I’ve found in my own work and observed many times on this blog: that water rate structures can affect affordability profoundly. The authors conclude that “rate structures remain one of the easiest and quickest mechanisms for utilities to address affordability challenges.”

Before contemplating complicated assistance programs, policymakers who want to address water affordability ought to start with smart pricing. Federal and state authorities—and maybe even wholesale water agencies—who care about affordability ought to incentivize progressive pricing, too.

Rates Revolution?

The California PUC continues to push the utility pricing envelope with Income Graduated Fixed Charges (IGFC) for electricity utilities as a means of promoting affordability. A new law calls on the state’s investor-owned energy companies to vary their fixed monthly charges according to customers’ incomes. The resulting proposed rates would reduce fixed charges to just $15 monthly for customers with annual incomes below $28,000, increasing through four steps to as much s $128 monthly for customers with incomes over $180,000.

That’s a profound departure from convention. In the arcane world of utility rates analysis, the traditional principle guiding analysis and policy is cost of service equity: the idea that the price each customer pays should approximate, to the extent possible, the cost of serving him/her. All utility rates are necessarily redistributive to some degree, but under conventional approaches the idea is to minimize redistribution and approximate cost-of-service so that customers do not subsidize other customers.

California’s new law and the proposed rates follow a very different principle of “equity.” What makes IGFCs so revolutionary is that they are intentionally redistributive—cross-subsidy is the point. Customers who the utility determines have high incomes will pay higher prices so that those who the utility determines have low incomes can pay lower prices. The proposed IGFCs have sparked controversy in California, with concerns about fairness and perverse incentives, along with a host of implementation challenges.

All this bears watching for us water folks because California’s PUC also regulates investor-owned water utilities and evaluates utility affordability as a bundle that includes energy, water, and telecommunications. If IGFCs fly for electricity, then gas, water, and telecom won't be far behind. Whatever implementation challenges energy utilities encounter are sure to be far greater for water utilities.

If California really wants a redistributive utility affordability program, it would be better to use revenue from the state’s progressive income tax to subsidize universal basic service for all customers. That approach would cover all costs, skirt most of the economic perversities that come from messing with prices, enjoy broad support, and avoid the implementation headaches that accompany IGFCs. But it seems that politicians prefer bizarro rate revenue schemes to tax increases (especially in California!), so here we are.

Grade inflation

The Louisiana Department of Health just published its first report cards for drinking water utilities. The Louisiana joins California and New Jersey in advancing public reporting on drinking water utility performance data, but it’s the first to assign letter academic-style letter grades. That’s exciting, as it’s an approach I’ve advocated since testifying in a 2019 New Jersey Senate hearing:

At the same time, the LA Department of Health’s grading rubric strikes this professor as… odd. Rather than multiple grades for multiple “subjects,” each utility gets a single grade, which is an amalgamation of water quality, aesthetic, financial, infrastructure, customer satisfaction, and management metrics. Grading follows a demerit principle: utilities start with a perfect 100 score, with points deducted for various failures. But the rubric also limits the deductions that a utility can receive on any single subject. Then utilities can earn up to ten “extra points” for various management measures.

So Louisiana’s rubric potentially allows utilities to perform quite poorly and yet retain a solid or even strong grade. A utility that violated a dozen Maximum Contaminant Limits (MCL) every single day would be penalized only 30 points, since the rubric caps MCL deductions to 30. The same utility could then earn ten “extra points” for participating in a management program and filing a well assessment program with the state. The utility’s final score would be 80, or an overall grade of B, for a utility that delivered hazardous water all year!

All of this kind of screams grade inflation. Unsurprisingly, 41% of Louisiana utilities got A grades, and another 27% earned a B. Is that an accurate depiction of water utility performance in the Pelican State? ¯\_(ツ)_/¯

In fairness, this is the Louisiana Department of Health's first attempt at a difficult and politically frought task. Grading standards may evolve in the future.†

Profits updates

Last month I joined Travis Loop's WaterLoop Podcast to talk about The Profits of Distrust. At one point we started laughing about the implications of a commercial drinking water brand called “Liquid Death” for trust in America’s tap water. Hilariously, Travis ended up in a flame war on Twitter with Liquid Death’s social media manager...😂 …who inadvertently affirmed that commercial water companies stoke distrust in tap water 😬.

Relax, Liquid Death. It's a joke.

And hey! Profits apparently presaged a wave of work on trust in tap water, racial/ethnic disparities in water, environmental justice, and the rise of the bottled water industry. There’s a new new book from Daniel Jaffee on these themes forthcoming from University of California Press this fall, and Stanford Impact Labs just launched a related study.

Etc.

The first big PFAS settlement just landed. Repetition across thousands of utilities would be lousy for everyone except trial lawyers. A 1998 Tobacco Settlement-style arrangement looks like the best answer, but the practical and political barriers are daunting.  //  EPA proposed new rules for SDWA Consumer Confidence Reports. They seem sensible, but I wish they were based on rigorous risk communication research.  //  A consortium of water sector organizations published a study exploring options for a permanent federal water bill assistance program; I was part of the study team. Main findings: 1) the need is $2.4B-7.9B annually; and 2) SNAP expansion is the best way to deliver assistance.

*Apologies to MGoBlog’s Unverified Voracity.

†I’ll have much more to say about grading utilities in the months ahead.