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Most consumers in Western North Carolina probably know exactly how many ounces of lager you get for $4.50 at the pub or whether $10 will top off your tank at the gas pump.
But exactly how much did you fork over for your morning shower? On average, about a dime across North Carolina. But who’s counting?
Maybe not the customer, but the folks who deliver the water to your tub are definitely watching pennies.
David Foster, the town of Waynesville’s director of public services, said his town’s strategy for managing its water system is to “spend as much as you can while building your savings account. We have to balance what we fix right now and make sure our fund balance is healthy enough to catch those emergencies.”
The utility serves roughly 16,000 households and is currently upgrading its six-decade-old treatment plant. Foster said the system’s next priority is replacing aging galvanized pipes that may account for up to 50 percent of the system’s pipelines.
Like many public water systems, Waynesville’s utility relies on rates for service to fund the operation, maintenance and improvement of its water service.
So exactly how much water users pay for showers and watering the lawn does matter, particularly for aging systems faced with costly repairs and upgrade.
If you’re in Western North Carolina, you’re probably paying a few cents more each month than other North Carolina residents, based on a Carolina Public Press review of rates across the state’s 18 westernmost counties. But if you’re on a privately owned water system, you’re likely paying close to $13 per month more than the state average. Those managing water systems say those rates come down to paying for short- and long-term costs.
Setting the right rates
Developing a financially sustainable rate model that also works for consumers presents a challenge.
“A lot goes into water-pricing decisions,” said Katie Hicks of Clean Water for North Carolina, a water-advocacy organization based in Asheville. “How do you set rates so that they are affordable, but keep up with costs?”
The Environmental Finance Center at the University of North Carolina’s School of Government recommends that rates reflect the cost of providing water service. Yet, those costs can vary by system and depend on a range of factors, including the customer base, age of assets and type of water source.
The EFC and the North Carolina League of Municipalities have produced an online tool, the NC Water and Wastewater Rates Dashboard, which displays utility rates across the state in comparison to other municipalities throughout North Carolina.
According to the dashboard, the statewide median water bill, based on using 5,000 gallons of water per month, was $31.32 as of January 2015. Among Western North Carolina utilities, the average rate is slightly above the state median at $32.25.
The EFC also determines whether water-utility operators are able to cover the costs of providing service to customers. Among the government-operated utilities in Western North Carolina, 96 percent of the systems collected enough revenues from rates and fees to cover costs.
But rates that just balance the budget may not be adequate according to the EFC. They won’t necessarily provide enough revenue to cover long-term improvements to restore aging infrastructure and finance improvements and expansion.
While costs may influence water rates, the utility’s ownership structure also has an influence on how much customers pay.
Water rates of government-owned utilities, such as the Broad River Water Authority which provides water to 55,000 residents in parts of Rutherford County, are set by the utility’s governing body.
In June, the utility’s eight-member board approved a 2.5 percent rate increase. The increase was the system’s sixth in the last seven years. Its residential charge is $26.90 per month for the first 1,000 gallons of water consumed. The EOC’s rate dashboard said the bill for 5,000 gallons prior to the rate hike was $46.97.
Maria Hunnicutt, the utility’s director said the price increase was part of a formal capital improvement plan adopted in 2007 that modeled the rate structure based on projected revenues and expenses, while maintaining a reserve of funds.
According to Hunnicutt, residents were notified of the proposed rate hike in May and conducted a public hearing in June, although no customers attended.
“We adopted the philosophy that yearly minimal increases were preferred for both our customer base and the authority instead of periodic, sporadic large increases,” Hunnicutt said.
Privately owned systems
Unlike government-owned utilities, privately owned water systems are subject to rate oversight by the N.C. Utilities Commission. To increase rates, private utilities must file an application, a process that is typically open to the public.
In North Carolina, two investor-owned utility corporations make-up much of the privately owned water systems. One of them is Aqua North Carolina, a subsidiary of Aqua America.
Aqua America is a publicly traded water and wastewater utility with operations in eight states. Statewide, Aqua North Carolina operates 750 water systems, primarily in small rural and suburban areas in the Piedmont and further east. In all, the company serves 77,000 connections, or roughly 250,000 North Carolina residents. In WNC, the company operates 14 community water systems, serving less than 1 percent of all water users.
Utilities Inc., a company that operates Carolina Water Services and other subsidiaries in WNC, owns 24 community systems serving more than 22,500 customers. While the company operates water systems in 15 states, it owns 5 percent of all community water users in the 18 westernmost counties.
Statewide, the cost of 5,000 gallons of water from an Aqua North Carolina-owned utility is $46.16. The rate charged to customers of Carolina Water Services, which is owned by Utilities Inc., is $45.45.
Bill Grantmyre, an attorney with the N.C. Utilities Commission public staff legal division who represents the using and consuming public, said the model commonly used for determining rates for privately owned water utilities is a “rate-of-return” model, which sets the rate equal to the cost of production plus a market-determined rate of return on capital. Most investor-owned utilities are regulated using this model, Grantmyre said.
Hicks’ Clean Water for North Carolina group has raised concerns about that approach since it may encourage utilities to pad their costs.
“The way it usually plays out is they agree on a rate of return and the rates go up,” she said. “Then that company spends a lot of money on improvements or new infrastructure or a number of different expenses, which may or may not be noticeable to the customers.”
Hicks points out that investor-owned utilities, on average, charge more than government-owned utilities. In the 18 westernmost counties of the state, the median water bill for privately owned systems was $45.23 compared to $32.25 for government-owned systems.
Grantmyre said expenses are scrutinized in the regulatory process.
“The company is allowed to recover its reasonable operating expenses,” he said. “The key phrase is reasonable.”
Public input or not
The public has typically had an opportunity to raise concerns over service issues and rate increase, though a new law, recently upheld by state courts, has made that more difficult.
In 2013, North Carolina enacted a law that created a water and wastewater system improvement charge that lets private utilities increase rates without filing a rate application with the utilities commission.
Grantmyre said it lets utilities make improvements and recoup costs through rate adjustments more quickly. He said the N.C. Utilities Commission has “stringent requirements,” including providing a three-year plan, profit and loss statements and ultimately approval from the commission that the improvements fall within the statute’s guidelines.
The N.C. Attorney General’s office challenged the decision to allow Aqua North Carolina to adjust rates under the statute, but the North Carolina Supreme Court ruled in August in favor of letting private utilities raise rates under the statute.
Aqua’s parent company has praised the decision and said it will reduce the regulatory lag that can hamper vital improvements.
Hicks isn’t convinced.
“The court’s decision allows investor-owned water and sewer utilities to circumvent the public comment process,” Hicks said. “Consumers have already criticized the Utilities Commission for failing to take the public’s comments into account in past rate increases. Now, they have even less of a voice in decisions about their water rates.”
Public versus private
Tom Roberts of Aqua North Carolina said he understands Hicks’ concern, but also argues that providing water can be costly.
“I think there is a challenge when it comes to the public’s perception that water should be cheap.” Roberts said. “They (government-operated systems) are not investing in infrastructure for the future, so they are keeping rates artificially cheap.”
But that claim doesn’t necessarily ring true for those overseeing public utilities.
Far from neglecting infrastructure, Hunnicutt notes that the Broad River Authority, which she oversees, has completed several major projects in the past five years, including a $6.25 million modernization of its water treatment plant, a $350,000 refurbishment of a 750,000 gallon elevated storage tank, a $750,000 replacement of its treatment plant generator, $1.7 million for system-wide meter replacements and some $500,000 for ongoing replacement of waterlines, hydrants and valves.
She describes an ongoing effort for public utilities to balance their priorities.
“In our desire to fund the most appropriate projects at that level, we have focused on the need for all water and wastewater systems to be viable,” Hunnicutt said.
“We discuss the many components of viability in terms of the need for systems to function as a business enterprise, establish organizational excellence and provide appropriate levels of infrastructure maintenance, operation and reinvestment, including reserves for unexpected events that allow a utility to provide reliable services to customers now and in the future.”
But those cost pressures do add up and end up being passed on to users. The median cost for Broad River Water Authority customers was $46.97 for 5,000 gallons, well above the level for typical government-owned utilities and slightly higher than the privately owned providers.
But steady investment in infrastructure doesn’t always force rates up so dramatically in government-owned systems.
Waynesville customers see a median price of $24.04 for 5,000 gallons of water, well below privately owned providers’ rates and even the WNC and state medians for government-owned utilities.
“We have to do a healthy mix of repair and replacement within our system,” said Waynesville Public Service Director David Foster.
Foster said the town has invested an average of $350,000 on its water line annually, roughly 10 percent of the system’s $3.5 million annual revenue.
Today’s rates in Waynesville may be lower than those elsewhere, but they follow a decade of annual increases between 3 and 7 percent.
He also noted that public water systems are mandated to do something else that private utilities don’t have to do – keep 8 percent of their operating revenue in a savings account.
“We make our living serving the public rather than making a lot of profit,” he said.