Pathways to Funding Customer Assistance Programs (CAPs) with Rate Revenue

Stacey Isaac Berahzer

Senior Project Director

Environmental Finance Center at UNC

TUE33 - Easing Rate Shock Through Affordability Programs and Non-Traditional Capital Providers; 06/13/17

AWWA ACE 2017, Philadelphia, PA

Learning Objectives

•Appreciate the dilemma with affordability in rate setting

•Understand the diversity in states’ guidance on CAP design

•Learn options for implementing CAPs even when state law is ambiguous

Dedicated to enhancing the ability of governments and other organizations to provide environmental programs and services in fair, effective, and financially sustainable ways through:

• Applied Research

• Teaching and Outreach

• Program Design and Evaluation

How you pay for it matters!

Work Funded by Seven National Water/Wastewater Associations

Research Team

Independent Legal ExpertsScott Rubin, Advisor

Roger Colton, Advisor

Rates and AffordabilityBackground

Do these rates send the right signals to

our customers, based on our objectives?

Will it provide sufficient cost recovery?

Are we allocating the costs to the

right customers?

What exactly does this include?

Will our customers understand these

rates?

Will our customers be able to pay these rates?

Are we following the

applicable laws?

Will revenues be resilient to changing

water demands?

THE PROCESS OF SETTING RATES

Learn essential background information about rates

Determine critical characteristics of your utility and

community

Design the most

appropriate rate structure

Compute the rates using projected costs

and revenues

Re-evaluate/adjust rate structure to fit primary objectives

Cost-of-Service Study

Rank Your Rate Setting Objectives1. ________

2. ________

3. ________

4. ________

Full cost recovery/ revenue stability

Encouraging conservation

Fostering business-friendly

practices

Maintaining affordability

(keeping rates low – to whom?)

Refer to this list and focus on the highest ranked objectives when following the guidelines for selecting the appropriate rate structure design.

Somewhat subjective

Billing Period

More Frequently Less Frequently(e.g.: Monthly) (e.g.: Quarterly)

Suggestion: Use a monthly billing period if you can afford it

Not as subjective

Affordability – What does your state allow you to do?Research Project

Can a Utility Use its Primary Revenue Source (Rate Revenue) to Fund a CAP?

•52 state legal summaries (includes PR and DC)

•9 case studies of well funded customer assistance programs

•Analysis of other sector approaches

•Analysis of international approaches

June 2017 Publication

https://efc.sog.unc.edu/opportunities-in-affordability-assistance

FINDINGS

Confusing and Ambiguous Legal Framework•Utilities must navigate a complex, confusing and ambiguous legal

framework that varies significantly from state to state

• In many cases, different types of utilities are subject to different rules that result in some utilities within a given state being able to design programs in a way that is prohibited for other types of utilities. e.g. in California: •Government owned utilities = CAPs curbed by restrictive statutory and

constitutional provisions • Investor owned utilities = CAPs encouraged

A Word Cloud Showing the Frequency of Key Terms on Rate Setting in Statutes and Case

Law for All 52 Entities

Can the Utility Use its Primary Revenue Source to Fund a CAP?

•Silence, ambiguous or restrictive language leave many utilities unsure if they can use their rate revenues

•Without the use of rate revenues, most of the CAPs across the country are small and can’t address the total customer need

Categorizing States by Level of Authorization for Affordability Programs Using Rate Revenue

Explicitly Authorized

No Express Authority

Potential for Challenges

Specifically Prohibited

About Public Service Commissions (or Public Utilities Commissions)

•An economic regulatory body in each state

•Governs certain rate setting and billing practices of certain utilities

• Typically, private utilities are regulated, while government owned utilities are not

•But, exceptions abound:• In 5 states and DC, the commission regulates NO water or wastewater utilities• In Wisconsin the commission regulates all of the water utilities (private and

government-owned alike) but very few wastewater utilities

Authorization to Create Affordability Programs Using Rate Revenues

CommissionRegulatedUtilities

Non Commission RegulatedUtilities

Process for Categorizing Each State

Legal database research (state statutes, case

law)

Draft state summary written by

research team

Draft reviewed by experts

and/or commission staff in specific state

Summary revised

Select group of experts rate all 52 summaries

individually

Average of these ratings

* Commission staff feedback trumped other experts in some cases

Commission Regulated Utilities: Ability to Implement CAPS Funded by Ratepayer

Revenues by State

Non Commission Regulated Utilities: Ability to Implement CAPS Funded by Ratepayer Revenues by State

A Few States Have Clarified their Laws to Specifically & Clearly Address Authority to

Establish CAPs from Rate RevenueExamples:•Washington State: created specific laws that outline how these programs can be created•To a lesser extent, states such as Kansas, Kentucky, and Nevada have also been clear that at least some group of water and wastewater utilities can use rate revenue to fund CAPs

Explicit Authorization: Example language from Washington State

•Commission-regulated utilities can request approval from the Commission to provide reduced rates to “low-income senior customers and low-income customers.”

• Further, under the same provision, “expenses and lost revenues as a result of these discounts shall be included in the company’s cost of service and recovered in rates to other customers.” Wash. Rev. Code § 80.28.068.

• The statute specifically addresses an "electrical or gas company," but it also provides for any “other party to a general rate case hearing” and its chapter title is “Gas, Electrical, and Water Companies.”

When State Law is Ambiguous: Options for Implementing CAPs Successfully

•Option 1. At the state level, introduce statutory language that addresses affordability programs in clear, unambiguous terms

•Option 2. Develop an argument for why a CAP conforms to existing statues and is not affected by perceived limitations

•Option 3. Develop an alternative program that does not rely on direct customer rate revenue to fund the assistance to low-income individuals

Utility Case Studies1. City of Atlanta Department of Watershed Management, Georgia

2. California Water Service, California

3. Camden County Municipal Utilities Authority, New Jersey

4. Great Lakes Water Authority and the City of Detroit Water and Sewage Department, Michigan

5. Suez Water and New York American Water, New York

6. City of Portland Water Bureau, Oregon

7. City of Raleigh Public Utilities Department, North Carolina

8. City of Seattle Public Utilities, Washington

9. DC Water and Sewer Authority, District of Columbia

Lessons from Outside the Sector

•Two case studies from other countries show how foreign water and wastewater utilities have addressed some of these issues in clearer ways (e.g. based on household size)

•Two case studies show how the energy and telecommunications sectors have implemented low-income CAPs funded by rate revenue in clearer ways and how this clarity has been facilitated at the national and state levels

Contact Information

Stacey Isaac Berahzer

UNC Environmental Finance Center

berahzer@unc.edu

Skype: StaceyBerahzer

Twitter: https://twitter.com/staceyib_enviro#wateraffordability