Our current rate structure has 16 tiers and goes back decades; originally had 100 tiers
The WSSC tier structure applies different rates to customers based upon their average daily consumption (ADC or water usage). Each tier has a different rate for a given range of ADC. Based upon the ADC, the total amount used during the billing period is multiplied by the rate for the associated tier. The higher the ADC, the higher the rate assigned to the tier. This is known as an inclining block rate. It reflects the cost of providing service to those who use more water.
While the original inclining block rate structure was designed to encourage conservation, now, nearly two generations later, conservation efforts have been extremely successful. Building codes mandate low-flow appliances, such as shower heads and toilets; and public awareness campaigns have changed mindsets -- “Turn off the water while you brush your teeth,” is a common refrain at home.
In fact, conservation has been so successful that WSSC customers are using less water per person. The reduction is enough, despite a population growth in our counties in the past 25 years and a growing water system we are now producing less water! The forecast is for that downward trend to continue for at least the next five years.
So why don’t we change the rate structure since conservation is working?
WSSC has already begun to look at its overall rate structure, although conservation in the region remains an ongoing concern that is monitored by all jurisdictions in the Maryland, Virginia and the District of Columbia. However, to change a rate structure, you need to identify a different rate structure to change to that meets your utility needs to be successful and still promotes community objectives. If it were simple, every utility would have the same rate structure and that is by no means the case.
In 2012, WSSC formed the Bi-County Infrastructure Funding Working Group consisting of staff from county executive offices and the county council offices of Prince George’s and Montgomery counties, as well as WSSC Commissioners and staff. The Working Group hired the Raftelis Financial Consulting Group in 2010 to help identify alternatives and less costly methods of funding infrastructure while confronting the challenge of making services more affordable for economically disadvantaged customers. This study identified several key financial objectives, including the need to review the amount of funding that comes from fixed revenues versus volumetric (usage) rates.
As a follow-up to the Raftelis Report, WSSC hired a rate consultant to complete a Water and Sewer Rate Study Technical Report presented to the Commission in 2014 by the Municipal & Financial Services Group (MFSG) of Annapolis, MD. Both studies recommended leaving the current rate structure as is, for now. In addition, both studies included shifting much of the burden of financing infrastructure renewal and account maintenance from the volumetric (usage) rate to fixed fees. So, beginning July 1, 2015, WSSC adjusted its Account Maintenance Fee (AMF) for the first time in 25 years and incorporated an infrastructure investment fee to provide dedicated funding to infrastructure renewal. This new component is more transparent – something our independent surveys of customers and focus groups specifically say is important. Both charges reduce the pace of the rising volumetric rate.
Let’s just have all residential customers pay the same amount.
Assuming that any change to the current rate structure is revenue neutral, there are going to be winners and losers. Somebody may pay less, but somebody else will pay more. Going to a uniform rate without careful thought, analysis and discussion would likely mean that 75% or more of the residential customers would pay more than their current rate. When this alternative was reviewed in the 1990’s, it was rejected by all as the increase required was about 95% in some cases.
All of this is a way of saying that the rate structure should not be addressed in a vacuum. WSSC and all its stakeholders must take a strategic approach that considers the overall fiscal environment, the financial operations and the longer-term financial plan and priorities of the organization. That is exactly what WSSC is doing. We must look at a range of rate options and the entire financial picture of WSSC and our customers over time, is the only approach that makes sense.
An RFP has just been issued that will allow WSSC to embark on this strategic journey in the near future. As the project moves along, we will need input and feedback from all of our stakeholders.