An Uphill Battle: A NC Case Study of Utility Cost Recovery and Customer Affordability

An Uphill Battle: A NC Case Study of Utility Cost Recovery and Customer AffordabilityAbstractWater affordability and utility financial sustainability are increasing concerns for water management in many industrialized parts of the world. (Aspen Institute Energy and Environment Program, 2022; AWWA, 2021). This is in part due to rising water and sewer rates; a study of the 50 largest metropolitan areas in the US showed that water and sewer rates increased on average 4.2% annually in the past nine years (Bluefield Research 2021). This trend is expected to continue considering 64% of surveyed water utilities planned to increase customer water rates in 2021 (AWWA, 2021). Water service providers rely on their customers to pay their bills in order to generate revenue, so the financial condition of the community/customer base heavily influences the financial condition of every utility. This analysis considers the financial health of a utility by focusing on cost recovery as measured by the Operating Ratio (OR), or the ratio of a utility's operating revenue to its operating expenses, across a range of utility characteristics. The financial capability of a utility was measured using the Affordability Burden (Raucher et al. 2019), which combines poverty prevalence and the financial burden of low-income, i.e., 20th percentile income household, to pay for water services. This presentation will detail research that was performed to empirically explore the link between a utility's financial health and the ability of its customers to afford their bills. This exploration includes additional factors that may affect a utility's ability to cover its costs including the number of customers, the percent of residential customers and water use, the particular demographics of the served population, and other factors that, as of yet, have received surprisingly limited attention. Indeed, results from this study show a measurable and meaningful relationship between household income distribution and utility cost recovery, Figure 1. The research analyzes financial capability and cost recovery among 301 North Carolina water service providers. North Carolina water utilities provide a diversity of size, income, and population conditions. NC water usage quantity and customer type was informed by the 2019 North Carolina Department of Water Resources Local Supply Plans (NC DEQ, 2020). This data was used to calculate average and cumulative residential water usage at the utility level. Additionally, the US Environmental Protection Agency (EPA) Safe Drinking Water Information System (SDWIS) database provided the total population served by each utility. Customer income, demographic, population, and water rate information was obtained from the Duke Water Affordability Data Repository (Patterson Duke University 2;SourceProceedings of the Water Environment FederationDocument typeConference PaperPublisherWater Environment FederationPrint publication date Feb 2024DOI10.2175/193864718825159261Volume / Issue Content sourceUtility Management ConferenceWord count15