EPA report highlights need for federal water affordability program

Environmental Compliance News

State:

The issue

The EPA “estimates that between 12.1 million and 19.2 million households throughout the U.S. lack access to affordable water services,” according to an Agency news release. “Nationally, the cost of unaffordable water service bills ranges from $5.1 billion to $8.8 billion.”

However, according to Stanford University’s Stanford Report, the number of people who struggle to pay water utilities is actually more than the EPA estimates because of what’s perceived as a flaw in the way water affordability is calculated.

“Water utilities, non-governmental organizations, and regulators generally assess water affordability by looking at total monthly water bills as a portion of household income, or what experts call the ‘affordability ratio,’” the Stanford Report article says. “The method has faced growing criticism because affordability ratios fail to capture a given household’s actual water needs, which depend on family size, appliance efficiency and other factors. Furthermore, the affordability ratio is usually obtained as an average or snapshot in time of a census block or city, meaning the metric is not specific to individual households or necessarily accurate over the longer term.

“The new Stanford research suggests metrics based on past payment behavior at the individual household level can provide a clearer view for water planners and regulators, policymakers and non-governmental organizations.”

Access to affordable, safe drinking water is a basic human need. The EPA report documents that there’s a growing inability to pay water bills across the United States.

“Many low-income households are struggling to pay their water bills, leading to economic stress and the potential to lose access to water services or even their homes in certain instances,” notes the Executive Summary of the EPA report. “When households are unable to pay their water bills, service disconnections can have impacts that include public health concerns, economic instability, social inequality, and psychological and psychosocial stress. Water utilities, meanwhile, are working to meet rising costs for operations and maintenance, upgrading aging infrastructure, and protecting public health and the environment, while facing difficult decisions about raising rates – often with the possible consequence of taking on substantial financial risk.”

Water assistance programs

At the local level, some utility companies have created Customer Assistance Programs (CAPs) to assist customers when they can’t pay their water bill. These programs restore service, prevent disconnections, and can lower rates in some cases. Elements of these programs can include:

Bill discounts
Special rate structures
Reduced meter fees
Emergency assistance
Free plumbing services for residential customers to repair plumbing fixtures to decrease their water usage
Reduced security deposits

The EPA report to Congress recommends the creation of a Federal Water Assistance Program that’s designed to serve all households facing challenges.

The report also recommends:

Evaluating best practices and creative program structures to increase assistance to all socioeconomic groups
Evaluating the need for a Federal Household Water Efficiency and Plumbing Repair Grant Program

Affordability solutions

A second area of focus in the report is the need to increase education, outreach, and knowledge around solutions to address affordability.

“Recommendation 4 is for EPA to work in partnership with interested parties and communities to promote water affordability tools and resources,” the report states.

Examples of potential tools, strategies, and resources include:

Webinars on best practices to tackle water affordability at the local, state, and federal levels;
Workshops establishing and funding assistance programs;
Encouraging and supporting an evaluation of true cost pricing, rates, rate structures, and approaches to help low-income residents when possible, as well as how the best approach might vary across systems (large urban areas vs. smaller areas);
Promoting success stories of cost-sharing partnerships among utilities;
Promoting best practices on water efficiency measures to reduce costs;
Encouraging states to support asset management practices and utilities to engage in intentional asset management planning;
Supporting states that, as required by the Safe Drinking Water Act (SDWA) Section 1420(c)(2)(f), are undertaking initiatives that promote asset management through their capacity development strategy and the provision of technical assistance to develop and implement asset management plans; and
Promoting partnerships, regionalization, and consolidation and encouraging states to exercise their mandatory assessment authority anticipated after the proposed Water System Restructuring Assessment Rule (WSRAR) is finalized to identify feasible and affordable long-term solutions for chronically noncompliant water systems.

Infrastructure and operating costs

The third area of focus in the EPA report is about increasing ways to reduce water infrastructure capital and operating costs.

Recommendation six in the report is to promote the use of low-cost federal funding and financing for water infrastructure and water technical assistance to address affordability issues.

Examples of federal funding available to address these issues are the Clean Water and Drinking Water State Revolving Funds. This funding invests in the nation’s water infrastructure and is designed to generate significant and sustainable water quality and public health benefits across the country and improve affordability in U.S. communities facing challenges.

Another federal program to address these challenges is the federally capitalized State Revolving Fund (SRF). In this program, states provide below-market interest rate loans and other financing assistance for infrastructure improvements and other water quality projects.

“States manage their SRF programs and are required to establish specific eligibility criteria and special funding mechanisms, including loan forgiveness and other grant-like options, for economically disadvantaged communities and those that meet each state’s affordability criteria,” states the EPA report.

Another federal program is the EPA Water Technical Assistance (WaterTA), which connects communities to experts who help assess and implement solutions for their drinking water, sewage, and stormwater needs. This program gives underserved communities across the country access to low-cost federal funding, which reduces overall project costs.

More than $500 million has been invested into this program since 2021.

“Interested parties recommended a continued focus from the SRF programs and WaterTA on ways to expand assistance to economically disadvantaged communities,” the EPA report adds.

This recommendation includes:

Strengthening the marketing of and communications about the SRF and other financial assistance programs to increase awareness of funding and financing options like the SRFs to communities facing affordability challenges.
Providing substantial and effective technical assistance to the most underserved and economically stressed communities to prepare for, apply for, receive, and invest low-cost federal funding and financing to address their critical water infrastructure needs.
Promoting technical assistance and SRF funding to help communities consider regionalization or consolidation options that could help to reduce financial burden on communities and customers.
Promoting appropriate and cost-effective technology and capital projects that address local water service needs and are innately less burdensome on local ratepayers—for example, large-scale water use efficiency measures as an alternative to a more expensive new water supply and treatment project.
Pursuing ways to implement the provision of the Clean Water SRF program that provides additional subsidization, through rate structures or other mechanisms, to directly benefit ratepayers who would experience a financial hardship because of an increase in rates necessary to fund capital infrastructure projects. This includes examination of the feasibility of the Environmental Financial Advisory Board’s (EFAB) expected recommendations on options to use this provision.

Recommendation seven of the report is to incorporate, where appropriate, recommendations from the EFAB on water affordability. The EPA recently charged this board with evaluating approaches to support communities facing water affordability challenges.

“This includes recommendations relevant to capital projects, CAP barriers, rate structure/design, and SRF subsidies,” states the EPA congressional report. “The charge tasks EFAB to develop new and innovative financing approaches, assess government strategies for implementing public-private partnerships and develop innovative investment models and market-based approaches that increase the long-term resiliency of infrastructure. Recommendations stemming from the EFAB Water Affordability workgroup will help establish a path of wholistically addressing water affordability and provide a roadmap of recommended approaches. It is recommended that EPA evaluate and, where appropriate, pursue these recommendations.”

The final recommendation in the report calls for continued research and understanding of water affordability.

“Continued research is crucial to better understand water affordability challenges across the U.S., identify disparities in affordable access to water services and guide the development of policies and programs to promote equitable access,” the report continues. “Ongoing research is also necessary to anticipate future challenges and innovate new solutions in the face of changing environmental and economic conditions. Household-level analysis on the impacts of high-water bills, rapid increases in rates (‘rate shock’), shutoffs, and [CAPs] are also areas for further analysis.”

Pesky PFAS

Last year, the EPA released new monitoring data for per- and polyfluoroalkyl substances (PFAS) from the Fifth Unregulated Contaminant Monitoring Rule (UCMR 5) shortly after publishing the final rulemaking setting drinking water standards for six PFAS.

“More than 7,000 entry points will need capital improvement investments to install treatment of PFAS in drinking water, totaling $37.1 to $48.3 billion in the next five years. Combined with costs of operations and maintenance the annualized cost is estimated to be $2.7 to $3.5 billion, roughly twice the EPA’s estimate as part of the final rulemaking,” according to the Association of State Drinking Water Administrators.

Although the cost of treating water for PFAS removal isn’t supposed to be passed on to consumers, average water bills across the United States have increased significantly since 2020.

Water utility challenges

Besides water treatment costs, water utility companies face costly challenges, which include:

Aging water infrastructure replacement or rehabilitation,
Adapting to growing or shrinking populations,
Climate and environmental challenges,
Cybersecurity measures, and
Requirements to protect public health and the environment.

“Utilities face the balancing act of funding routine O&M (Operation and Maintenance) costs and longer-term capital expenditures to replace or upgrade infrastructure. O&M cost increases are often driven by labor and supply costs and the increased maintenance needs of aging plant and pipeline infrastructure,” the EPA report says. “The 2022 Low-Income Household Water Assistance Program (LIHWAP) Survey showed that very large utilities, which serve populations of over 100,000 customers, had an average arrearage balance of approximately $15 million per utility. When too many customer accounts fall behind in paying their bills, some utilities find rates and fees inadequate to cover infrastructure needs and treatment costs. The LIHWAP Survey also found that utilities of all sizes faced challenges in setting rates that are affordable for customers while covering necessary costs needed to meet sound financial metrics.”

A national crisis

“As far back as 2018, experts warned of a US water crisis,” reports water purifier store Glacier Fresh. “The Guardian cites a leading utilities analyst, Roger Colton, as reporting that between 2010 and 2018, U.S. water bills rose by at least 27%. Colton's report stated that in Austin, Texas, the average annual water bill of $566 in 2010 increased to $1,435 in 2018. That's a shocking increase of 154%. Adding to the crisis, federal aid to public water utilities serving almost 90% of the US population was plummeting. The fact that this shrinking of aid happened during environmental and health threats and extreme climate events only worsened the crisis.

“Then came the pandemic in 2020, which resulted in shutdowns, supply chain problems, and a considerable cost increase and inflation. This has resulted in most water utility companies—public and private—battling to maintain a safe water supply and maintain crumbling infrastructure. This combination is the primary reason behind high water bills in the U.S.”

For long-term sustainable change, the EPA report discusses the need for change in how water utilities are funded and rates established.

“Access to clean water is not a luxury—it's a fundamental human right,” Rep. Blunt Rochester, D-Del., a member of the House Energy and Commerce Committee, said in the EPA news release. “The inclusion of the Low-Income Water Customer Assistance Act in the Bipartisan Infrastructure Law … marked a significant step toward ensuring equitable access to safe drinking water for all. Today’s report further advances this effort and highlights the nationwide need for assistance to low-income water customers.”

“We know people are struggling to afford critical water and wastewater services, and they need support now. This report makes it clear: the time has come for a permanent federal water affordability program. I want to thank the EPA for bringing national attention to this urgent issue. Water agencies across the country are ready to act to ensure every household has access to the services they depend on,” Tony Parrott, president of Water Agency Leaders Alliance (WALA) and CEO of the Louisville and Jefferson County Metropolitan Sewer District, said in the Agency news release.

View all resources on Drinking Water